Although credit scores play a huge role in sanctioning your loan application, that is not the only thing banks consider before approving your loan. Banks and financial institutions regard various other parameters while evaluating and sanctioning your home, car, and personal loan applications. So, based on the various other factors, banks may reject your home, car, and personal loan applications even when the credit score is high. Let us read on to find out about the various other parameters banks may consider when sanctioning home, car, or personal loan applications.
Status Of Your Employment And Your Monthly Income
Having a stable employment and earning an income which conveniently covers your loan repayment terms are essential to qualify for a loan. The application for a loan includes multiple questions with regard to your profession and finances. All these are used to calculate your credit score statistically. The cut-off may seem to be appropriate, but the riskiest candidates get auto-rejected. This process may be discretionary in many cases.
Comments In Your Credit Reports
Apart from a numerical score, credit reports also include remarks and comments by lenders. Banks sometimes give you the alternative to pay your loan for a slightly lower amount than the sum total of all your EMIS. They also give interest rate reductions etc. to help you clear your debt. If you settle your loan in any way apart from the conditions on which you took the loan, there will be a remark about it in your credit report and this will work against you.
Data From The Past
Credit rating agencies may not consider the traditional information about a loan applicant. But, banks might. It is hard to get rid of the tarnished impression from the past, especially if you have ever been bankrupt. Featuring in the list of individuals with poor creditworthiness may prove to be highly damaging for your financial future. You should always be up to date with your debt commitments and make scheduled payments to be classified under the performing asset section of the bank.
Making Multiple Credit Enquiries
If you enquire with too many banks for a loan at the same time and even one of the applications gets rejected for any reason, it will have an impact on your credibility. It is always important to apply for a new loan from the bank or lending institution from which you have procured loans in the past, if you share a good relationship with the financial institution and have maintained a good financial history. The lending institution will know about your creditworthiness and this will help you in getting your loan sanctioned with ease.
There may be nothing wrong with your credibility, but if the bank’s portfolio has outdone the limit of loan approvals in a particular period when you have applied for a loan, the bank might rationalize your score to reject it in reality. Banks also match details from other financial institutions for knowing about the defaulter’s history.
When Your Details Match With Those of Defaulters
Some individuals have been denied loans even before their credit score has been verified. This is because the details that they submit like the name, age, address, current employment, and other details of individuals may match with the information in the defaulter’s list. For example The people who have moved into the homes of defaulters would have submitted addresses belonging to defaulters.
When You Are Overleveraged
If you are overleveraged, you can only assign a certain amount of your declared income to clear your debts. If you earn Rs. 50,000 per month and have three other loans that you have to clear by paying Rs. 10,000 per month, you have Rs. 20,000 for personal expenditure. Banks will not approve another loan and will mark you as overleveraged. Your DTI (debt-to-income) ratio will be unfavorable and you will not be able to allocate more to pay off your new loan.
If you have taken too many loans in the previous year without thinking about whether you will be able to pay them or not, banks will not approve your loan. This is since you will be considered credit hungry by the bank. Even though your record is clean and your credit score is good, you will be considered as a person to whom it is a risk to lend a loan.
Insufficient Tax-Paying History
Banks and other financial institutions generally give preference to individuals who have been actively filing income tax for at least two years before applying. It is easier to judge the creditworthiness of such individuals as there is an existing record apart from your credit report that can help them make an important decision.
If most of your assets are pledged, it shows that you are into a lot of debt currently. The bank may not approve your application if most of your assets are pledged and the bank does not have any collateral which it can use. Thus, the loan will be rejected even if the credit score is good. Your ratio of secured to unsecured loans should also be favorable to guarantee you a loan. Furthermore, the applicant should be aware of the EMI to income ratio, which is important for evaluating your loan application.
Guarantor On A Defaulted Loan
If you are a guarantor to a loan that has been defaulted, this will affect your credit score and report in a negative way. Because, even if you are a guarantor to a loan, you will be as responsible for the loan as the borrower.
Banks have strict guidelines for loan approvals and disbursals. So, managing your finances with discipline will be helpful. Some banks have also started including credit scores in credit card bills. You should never take a depreciated score easily and should inquire in-depth about the reasons for the same. If it’s due to a disparity, it should be reported instantly to the concerned bank or financial institution. If it is due to ignorance from your side, then you should take steps to correct it immediately. A credit score of over 750 is considered to be very good. You should always keep a track of your credit score and see how it changes.