Your credit score acts as a gauge of your creditworthiness, allowing lenders to assess your application as a possible borrower based on your financial history. As soon as you apply for a loan with a bank or a non-bank financial organisation, the lender will assess your borrowing capacity based on your income level, age, salary, and credit score. Your credit report provides information on your credit history and your debt repayment history, among other things. Be aware that your credit score is simply one of many factors taken into account when deciding your eligibility for a loan and the approval of your application.
Did you know? As per the RBI guidelines, you can write a cheque in Hindi or any local language of your preference.
CIBIL Report correction
- To begin the dispute resolution procedure for a CIBIL score change, you must first start the dispute resolution procedure on CIBIL's page and follow the instructions on the page to alert CIBIL of your dissatisfaction with their decision. Fill out the resolution form and make a note of the concerns you'd want CIBIL to look into further. Check the validity of your claims by providing all necessary proof, and then submit your completed form together with any necessary papers. CIBIL score update time is long, so don't expect anything soon.
- The agency will respond to you within 30 days of receiving your CIBIL concerns and after completing an inquiry into your concerns. To verify your claims, CIBIL may call your lenders as well as you personally. According to the results of a thorough examination and review, CIBIL experts will make any necessary revisions and update your report with accurate information.
- It results in creating a new credit report, which may result in an improvement in your credit score. A credit score of 750 or above is required before you can apply for any loan or credit card. A good CIBIL score, for example, means you may apply for a personal loan at any time and be approved for up to ₹25 lakh at the time of your application.
- According to CIBIL, no record of defaulters is maintained. Individuals' credit records are kept based on information provided by Member Credit Institutions, as reported by them. The credit policy of the Credit Institution is the only factor in determining whether or not to grant a loan. Purchasing your CIBIL Score and Report allows you to examine your credit history in more depth, as well as identify any possible discrepancies or errors against your name. Technically, CIBIL Report correction is not in CIBIL's hands. Although, they keep you up to date with CIBIL dispute status by notifying you every seven days.
- It is prohibited for CIBIL to make any changes to data in the database without first getting approval from the proper credit institution, according to the Credit Information Companies (Regulation) Act of 2005. Every 30-45 days, credit institutions transfer data to CIBIL. If you get your CIBIL Score and Report within 45 days after shutting/paying off your accounts, your CIBIL records may not have been updated. There is no fixed CIBIL score update date.
How does loan rejection affect CIBIL Score?
- As previously indicated, as part of the loan application procedure, any bank will do a credit check on your CIBIL credit report to determine your creditworthiness. When a bank or credit institution requests information, this is a hard inquiry.
- The outcome of a thorough investigation is a lower CIBIL score; as a result, you should avoid asking for many loans from different banks at the same time since each denial will drop your CIBIL score even more.
- Additionally, suppose your prior loan application was declined. In that case, you should avoid asking for another loan shortly since this will hurt your CIBIL credit score.
- To prevent making the same mistake again, you must determine the reason for the rejection.
Other Reasons for Loan Rejection
Aside from having a poor CIBIL score, the following are a few more factors that might lead to a loan being denied.
Verification of identification documents:
Any key qualifications that the bank cannot verify or confirm will increase the likelihood of your loan application being declined.
Issue with Credentials:
Banks and financial institutions gather financial and non-financial information on you in partnership with CIBIL in compliance with Know Your Customer (KYC) laws. Examples of such information include your full name, age, address, and current employment status. If a regular user's credentials match those of a previous defaulter, this may sometimes result in complications for the user. For example, if you have just relocated to a new rental location and the previous renter was a defaulter, the bank may decline your loan application to prevent the appearance of a fictitious loan acceptance.
Applications using collaboration:
Banks will not accept combined loan applications from applicants unless they are related. It is permissible to take out joint loans with your spouse, sibling, or parents in the financial industry.
Rejection of a previous loan:
If your previous loan applications were declined, CIBIL and the bank would keep track of this. All of this information will be available to your current lender when you apply for a new loan, which may result in a loan denial.
Tax evasion is a serious offence
According to the Federal Reserve, banks also give preference to potential borrowers who have a track record of promptly submitting their ITRs over the previous three years. In the end, this results in an extensive track record with the government and credit rating agencies.
Observations made by CIBIL
As well as keeping track of your credit history and CIBIL credit score, CIBIL also keeps track of a few details concerning your current financial status. If you have missed a payment, requested preferred loan terms, or paid EMIs beyond the due date, lenders will document all of the terms and conditions in the notes and comments section of your account.
Co-CIBIL applicant's rating is poor
The income of both you and your co-applicant is considered for the loan application guarantee when you submit a joint loan application. A poor CIBIL score for your co-applicant increases the likelihood that the lender will refuse your loan application.
Someone who is a regular borrower
It's simple. If you borrow money often or have many loan accounts in your name, banks will be reluctant to provide you further credit out of worry that your current debt-to-income ratio may increase even higher. Additionally, banks will label you as a dangerous borrower; a risky borrower is defined as someone who borrows money regularly without repaying it. It is also possible that continuous credit utilisation will harm your CIBIL credit score and rating. A low CIBIL score increases the probability of a loan being turned down for approval.
Defaulted loans in the past and present
If you fail to make a loan payment or act as a guarantor on a defaulted loan, your CIBIL rating will be negatively affected. A bank may reject your loan application outright if you have a history of or are currently in arrears of a previous or current loan payment.
If you do not have a substantial amount of money in savings, lenders will decline your loan application.
Loans with collateral and loans with no collateral:
Keep a healthy balance between your secured and unsecured loan accounts since this will help you to avoid financial difficulties in the future. Secured loans, such as mortgages and car loans, involve collateral that the creditor may take if the loan is not paid back in the agreed-upon time. Unsecured loans do not come with a guarantee of repaid principal and interest. Unsecured loans include personal loans and credit cards, to name a few examples. If you have a large number of unsecured loan accounts, it is quite unlikely that the bank would provide you with a loan.
Risky employment and other factors:
Workplace instability of any type may negatively influence your CIBIL credit score. The loan application procedure may be negatively impacted by workplace instability, late payments, and frequent job changes. In certain cases, even frequent permanent residence changes may disqualify you from obtaining a loan from a financial institution. Generally speaking, banks are only interested in lenders who have a history of stability in their work and financial status.
In response to some challenging questions:
In the financial industry, this is referred to as a hard inquiry. When a bank or financial institution demands a person's CIBIL record, this is a hard inquiry. If you apply for several loans from different lenders at the same time, each lender will thoroughly examine your situation. Moreover, receiving multiple rejections can negatively impact your CIBIL score.
Also read: How to get an MSME loan without collateral?
The article covers the CIBIL Score requirement for getting a loan, why the CIBIL Score dips and what might be other reasons for rejection of the loan. It also talks about how long does it take for CIBIL to update the CIBIL score and the procedure for raising any dispute. CIBIL doesn't have any control over altering your report until the Credit Institution (such as bank) doesn't revert to CIBIL regarding the issue you might have raised.
We sincerely hope that the information was helpful and will help you resolve your dispute or procure the desired loan.
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