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Top 8 Reasons for Loan Rejection with Good CIBIL Score

January 24, 2024 • 511 views

Was your loan application rejected despite a CIBIL score above 750?

Loan can be a lifesaver when financial emergencies arrive, but sometimes, loan approval procedures can get tricky. In several cases, loan applications get rejected even after having a good CIBIL score. The majority of the time, application rejections can lead to disappointment and financial distress. Do not worry! Read on to learn the most important reasons for loan rejection so you can optimize them beforehand. 

8 Reasons for Loan Rejection with Good CIBIL Score

Before we proceed to discuss the reasons for loan rejection, it is important to learn that CIBIL or credit scores are not the only factors financial institutions consider when they lend money.

Here are the top 8 reasons you should keep in mind when you face loan rejection even after having a good CIBIL score:

1. Multiple Loan Applications

Before any lender approves a loan application, they access the credit information of the borrowers from bureaus. Hence, applying for a loan from multiple lenders simultaneously leads to an increase in the number of hard enquiries, affecting their financial profile.

Also, if a borrower avails numerous loans at a time, it raises suspicion in the lender's mind about their timely credit repayment ability. So, having multiple existing loans when applying for a new credit can significantly reduce the chances of approval.

2. Guarantor to a Defaulted Loan

A loan defaults impacts both borrower as well as guarantor’s credit history. Even if you're just a guarantor, your involvement in a defaulted loan can negatively impact your CIBIL Credit Report.

Lenders may use your guarantee on the defaulted loan as a reason to deny your loan application. Therefore, it is crucial to assess the repayment capability of the borrower before agreeing to be a guarantor.

3. Comments in CIBIL Report

Comments in the CIBIL report can also contribute to loan rejection with a good CIBIL Score. Delayed EMI payments or request for lower interest rates reflect the applicant's financial behaviour and repayment habits.

It would be prudent not to overlook these comments, as lenders review your credit report minutely before approving a loan. Efforts should be made to address comments by discussing with creditors, requesting goodwill deletions, etc.

4. Instability in Career or Company

Lenders prefer borrowers with stable and regular income sources, setting income eligibility criteria for loan qualification. This criterion varies for salaried individuals and the self-employed, taking into account factors like age and employment history.

If you are a business owner seeking a loan, instability in the financial conditions of your venture might lead to application rejection. Similarly, if salaried individuals are unable to provide necessary income proof documents, their credit approval can be at stake.

5. Irregular Tax Paying History

Maintaining a regular history of income tax filing is essential for loan applicants, as it provides additional information to lenders about financial behaviour beyond credit scores. Lenders view regular tax filing as a positive indicator of responsible financial conduct.

6. Presence of Loan Rejection History

Previous loan rejections can negatively impact the approval of future loan applications. This is because credit bureaus or previous lenders often record such information. Even with a good credit score, the presence of a loan rejection history can hinder the approval process.

7. Co-applicant with a Poor CIBIL Score

In joint loan applications, the CIBIL score of the co-applicant is crucial. If the co-applicant has a low score, there is a higher likelihood of the loan application rejection. Therefore, it is recommended to check the credit score of the person who will be the co-applicant before beginning with the loan application process.

8. Not Maintaining a Healthy Credit Mix

Maintaining a good balance of different credit types is essential for securing an excellent credit score. So, apply for a collateral-free loan as well as a collateral-based loan, depending on your financial requirements.

Also Read - How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?

To Conclude

When applying for a loan, it's essential to keep in mind that lenders don't make their decisions based on one single factor. Therefore, it's crucial to emphasize and consider all these factors when applying for a loan rather than solely relying on your credit score. This will help you present a more comprehensive and accurate picture of the reasons for loan rejection and increase your chances of getting loan approval.

Having a good credit score? Apply for a loan from Poonawalla Fincorp to enjoy benefits such as competitive interest rates and quick approval.

Frequently Asked Questions

1. What is the best credit score?

While specific credit score thresholds vary between lenders and their algorithms, a score of 750 or above is generally recognized as excellent. This indicates a strong credit history and significantly increases your chances of securing favourable loan terms and interest rates.

2. What to do if you face a loan application rejection?

If you face rejection of your loan application by one lender, it would be best not to immediately seek another loan. You should wait for a period ranging from 3 to 6 months. During this time, assess and compare loan offers that align with your eligibility criteria. Apply for the loan that stands the highest chance of approval based on your evaluation.

3. Does settling a loan show up on my credit report?

While the settled loan details might not be immediately apparent when you access your credit report, lenders can see it in a separate section. This information will negatively impact your credit score.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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