Has it ever occurred to you as to why your loan application
was rejected even after regular repayment of your existing debts? It might be a
cause of obtaining too many debts or no loans at all. Credit scores are a key
element in gathering loans; however, too many loans may be portrayed as “hunger
for credit”. On the other hand, no loans depict that you have no credit history.
Hence, there is a fine line between too much credit and no credit history.
Delegates from credit rating bureaus state that non
application of a loan for a few years in a stretch leads to insufficient
information about an individual’s credit transaction activities in the rating
agency’s database which means a negative score. Here are a few reasons why your
loan application might be rejected:
The credit score provided by CIBIL is computed on the basis
of the borrower’s credit history over the past 24 months. Generation of the
CIBIL Transunion score requires the borrower’s recent credit history over a
minimum period of six months. Hence, an individual who has repaid and closed
his home loan
and/or credit cards a few years ago and does not possess any existing loans or
credit cards post repayment will not get a CIBIL score. His/her credit score
will reflect a value of “-1” which indicates that no history (NH) is obtainable
on the borrower for generation of the credit score.
Bankers take the NH rating of an individual seriously as a
clean history means absence of any available data which leads to increased
checks and balances. If an individual does not have a loan history or a credit
score, the bank will try to gather more information which makes the loan
approval process measured and time consuming. People with o credit history are
asked to provide more references so that their backgrounds can be cross
checked.
Agencies consider other characteristics while providing your
credit rating; for instance, unexpected utilization of all your credit cards
when you have been making use of only one credit card for a long time, various
unsecured loans and excessive credit utilization. Too many unsecured loans are
viewed as risky behavior which indicates that the individual has too many
contingencies. Hence, your potential to repay the money on time is questioned.
If you are planning for a home loan or a car loan, it is
advisable that you clear your debts well in advance preferably within six
months to a year. If you have incurred too many personal loans, you can apply
for one big loan that will help in settling all other dues. However, you need
to ensure that the installments are being paid regularly and within the
specified deadlines. Loan application in this case might be rejected if you are
unable to make timely payments.
Clearances of dues like bouncing of an earlier cheque are
essential. The amount to be repaid might be infinitesimal, but reflects poorly
your loan-taking ability.
Loan applications by Young adults with little or no credit
history might be rejected in which case it is advisable to have a parent with
active credit movement to be a co-applicant to incur the loan.
[Source: https://www.creditsudhaar.com/blog/2015/10/24/common-reasons-why-your-loan-is-rejected/]
