Common Reasons why your Loan is rejected

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/]