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CIBIL™ is one of the four authorized credit bureaus in India which provide a credit score, the others being Equifax, Experian and CRIF High Mark.

Sometimes, a loan application can be rejected even with a good CIBIL™ score of 750. This can be very disappointing and distressing for the applicant who thinks he has done everything he can to ensure good credit. What are the reasons for this rejection?

  • Any settled or written off loans in the past:

    If you have any loan account that has not been paid according to the original terms of the loan, it serves as a warning signal to future lenders. This is an indication that you have not been fully financially responsible in the past, even if your recent history shows fully paid loans. Any such mark is a red flag for potential lenders as they see you at risk of repeating such behaviour.

  • Guarantor on defaulted loan:

    If you have been a guarantor on a loan that was not repaid, then your your credit score is affected

  • If you are marked as a defaulter by error:

    Sometimes, unfortunately, if you have moved into a house that was previously occupied by a defaulter, you might be listed as one simply because of the address match. Banks will reject your application outright on seeing that you are a past defaulter.

  • Debt to Income ratio:

    If you have many current loan obligations and are spending a high percentage of your monthly income on servicing your existing debt, you run the risk of rejection - even if you have a good record of making repayments. If your monthly debt obligations exceed a certain percentage of your income, lenders feel that you might not be able to take on further loan payments. For instance, if your monthly income is Rs. 60,000 and you spend Rs. 40,000 on making loan payments, you have little left to spend on personal expenses. Banks feel that you will be unable to afford further loan repayments.

  • More unsecured debt:

    If you have a high percentage of unsecured debt, (loans taken without collateral, like a personal loan, banks are unwilling to take a risk in lending to you. You should have a higher percentage of secured loans (like a home or auto loan) over unsecured loans.

  • Live in particular postal code:

    Strange though it seems, sometimes just living in a ‘high-risk’ locality can cause loan rejection, even if you have a good score. Through statistical data, banks have a list of neighbourhoods that have a high incidence of default. If you happen to live in that area, you might be automatically rejected despite your good credit record.

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