In today’s world, having a good credit score increases your chances of getting instant loan approval. It also leads to the misconception that having a good CIBIL score is enough for getting a loan. Thus based on this scenario, borrowers apply for loans based on their CIBIL scores. But despite having a good score their loan gets rejection, leading them to wonder why.
The CIBIL score helps the banks and other financial institutions determine your creditworthiness and risk assessment. It also plays a vital role in your loan approval, but it is not the only parameter that the bank considers for approval of your loan. Hence several parameters might prevent you from obtaining a loan.
In this article, we will address all the critical factors that lead to loan rejection despite having a good credit score. Make sure to go through all the reasons before applying for a loan so that your loan can get approved quickly.
If you keep borrowing Credit Frequently.
Many people keep on borrowing loans from various lenders and banks, which is one of the most important reasons for your loan application to get rejected. Due to these banks and financial institutions start doubting your power on repaying the loan, which leads them to have trust in your repayment process. The lender also thinks that granting a loan to such an individual will increase the borrower’s credit debt and lead to defaults. If you keep borrowing the funds frequently, it will impact your credit score report.
Even if you keep repeating the money on time of the multiple loans is, the banks and lenders will still doubt your creditworthiness and your capacity to repay. You will be a risky applicant to them. In such a case, the lenders conclude that you are over-leveraged, and an additional loan will overburden you financially. This conclusion turns the lender to turn down the loan request of such an applicant.
If there are any comments in your CIBIL Score
Sometimes the reason behind your loan rejection is ignoring the comments on your CIBIL report, which generally we ignore. The statement can include delays in your Emis payment or requests to lower the interest rate. Thus, the reports generated by CIBIL in terms of credit scores and Credit Information Reports play an essential role in securing loans for you from lenders. Hence, lenders take notice of any observations made in these reports in addition to the three-digit numerical CIBIL Score.
In the CIBIL generated report, these comments may adversely affect your ability to get a loan if they either pertain to you settling the loan by deviating from the terms and conditions of the loan, or you requesting a lower interest rate mid-term, or you paying EMIs after Days Past Due (DPD). Hence, you must not ignore the comments and resolve them by negotiating with your creditors or paying off your debt balance.
If You Want To Apply For a Loan with Friends or a Sister
Your loan application might also get rejected if you have applied for it with your sister or friend. Only the lending industry prefers and approves joint loans between sisters and friends. Hence, you must check out the loan terms and conditions before applying for it.
If you Become a Guarantor to a Defaulter Loan
Whenever your loan defaults, it will impact the credit history of both the borrower and the guarantor. So when you are part of a loan that defaults, even if you just stood as a guarantor for that loan, your CIBIL score and your credit report will get affected.
If you apply for a loan, this reason can be a cause of not approving your loan application. Hence, you must keep in mind to check the borrower’s repayment capacity if you will become a guarantor for their loan.
If you have instability in your Career or Company, etc.
If you are unstable, whether it is in your career or in the company you have worked for, then it will have an impact on your CIBIL report. It doesn’t even matter if you have an excellent CIBIL score. Your loan application will get rejected because of your regular job and company change.
Furthermore, if you often move your permanent residence, it may reflect poorly on your loan application. Lenders are searching for borrowers that they are confident will return their loans, so they aim to avoid loan applicants who have unpredictable employment or personal situations.
If your details do not match your accurate information
When applying for a personal loan, make sure to fulfill all the details carefully, such as name, age, address, current employment, and other identifying information, even when filling the payment and credit-related information. Hence the banks and the non-banking financial institution will check out the below information. Any of this information does not match, then your loan application will be rejected even if your CIBIL Score is good, as banks prefer not to approve the loan applications that are forged.
If You Make A Continuous Query About Your CIBIL Score.
Make a soft query about your CIBIL Score or credit report to check, it won’t affect your credit score, but if a lender pulls the question to inspect your credit history, you can have problems in approving your loan.
If there has been a lot of hard inquiry by lenders, then it shows that you must have applied many times for loans. Hence, it won’t be called a good approach, and it can be the reason for the denial of your loan approval.
Also Read : Common Myths about Personal Loan
If you are Trying to get a Loan From Different Lenders at the Same Time.
Your loan application may also get rejected if you apply for multiple loans simultaneously or try to apply for a loan from various lenders at the same time. A personal loan may be approved by the first two lenders who review your credit report, but further inquiries by other financial institutions might lead to loan rejection,
Suppose you apply for multiple loans at more or less the same time or submit an application for the same loan to various lenders. In that case, you will be termed a frequent inquirer by CIBIL, and even though you may have a good CIBIL score, your loan application stands getting rejected. Thus, it is advised to wait before applying for a new loan to avoid hard inquiries.
If you Have Previously been Turned Down for a Loan
If your loan has been rejected previously, it will remain on the borrower’s credit report and that of the earlier prospective lender if the borrower has applied for a loan once. The new lender pulls up this history whenever the borrower applies for a new loan. When the ‘Rejected Loan’ information is introduced into a loan application, it will even affect an excellent CIBIL score of the borrower, causing the loan to be rejected.
If Your Co-Applicants Credit Score is Low
It is always suggested to first check the CIBIL record of your co-applicant before borrowing a loan. Even if you have a good credit score, your loan application might get rejected if your co-applicant has poor CIBIL scores.
If you want your loan not to get rejected, then try to maintain all your finances carefully. You should always check your CIBIL Score regularly to fix any discrepancies on the report before applying for any loan. Your application might also get rejected if you work for an organization that pays its employees late or if any of your colleagues default on loans and have poor credit scores.
There are various factors that determine whether you will repay your loans when you apply for one. In addition to these factors, other factors that influence your credit decisions are the borrower’s income, age, and job stability, as well as their credit report. The factors mentioned above and other similar factors may lead to the rejection of your loan application, so keep all the factors mentioned above in your mind to get the loan approval quickly.
To make sure your loan isn’t rejected, you can even get expert financial advice from Buddy Loan, which specializes in giving banking and financial advice to help you make an informed decision when obtaining a loan. They also offer personal loans from the best lenders with low credit scores and minimal documentation.
Having any queries? Do reach us at firstname.lastname@example.org
People Also Ask
Q. Is CIBIL score a reason for the loan rejection?
A. Yes, the CIBIL score is the reason for your loan rejection. If, by any chance, your loan is rejected, and it has affected your credit score, then the next or in the future, the chances of getting the loan approval will decrease. Hence, it is suggested to maintain your CIBIL Score.
Q. Do you know what to do if your loan application is denied?
A. If you have applied for the loan application and it got denied, you must try not to apply for another loan right away. You should wait between three and six months and then compare loan offers that meet your eligibility criteria before applying for the one with the best possibility of approval.
Q. Can you get a loan with a low credit score?
A. Yes, you can get a loan with a low credit score from the Buddy Loan. It is advisable to check out the necessary factors to qualify for the loan.
Q. Which factors are acceptable for your loan rejections?
A. There are many factors that can be considered as grounds for a rejection of the loan, such as a poor credit score, job instability, low income, outstanding payments, a high EMI/NMI ratio, etc.
Q. Can the settlement of the loan be seen on your credit report?
A. It is also reported in an unseen section of the credit report that the loan was settled. This will negatively impact the credit score.
Q. Is the credit rating of the co-applicant considered when the loan is sanctioned?
A. Yes, it can impact your loan approval because the lenders also check the co-applicants credit score while considering a loan application.