The Credit score phenomena is proliferating at an accelerated pace across the fintech industry with a vast spectrum of institutional bodies ranging from highly reliable credit bureaus to free-floating offerings from payment platforms. It is highly essential to comprehend the inherent purpose behind these various diverse scores and the significant impact they can have on the how they impact your reliability of prospective borrowers. Depending on the information, there are a wide range of criterions that are taken into scrutiny by loan assessment companies. Furthermore, there are a number of specific pre-established standards that are utilised for computing your credit scores perchance you apply for a loan. Rohit Garg, CEO & Co-Founder, SmartCoin, shares his knowledge on why might be facing the repeated instances of loan rejection.
“Risk managers perform the task of securing the bets of a bank to protect them from bad debts. In doing so, they may consider factors that are not used in the general assessment. This may lead to rejection of your application even if you are just marginally off the threshold. Let us discuss how to ensure loan approval by understanding the various parameters involved,” Rohit Garg said.
Employment Status and Monthly Income
“Being stably employed and earning a viable income to cover your loan repayment terms are crucial aspects of being eligible for a loan. The application for a loan includes myriad questions regarding your career and finances, which are all used to compute your credit score statistically. The cut-off may seem to be just, but the riskiest prospects get auto-rejected. This process may be discretionary in many cases,” Garg added.
“Credit rating agencies do not consider the traditional information of a loan applicant, but the banks might. It is hard to get rid of your tainted past, especially if you have ever been bankrupt. Being in the bad books of financial institutions may prove to be highly derogatory for your future trustworthiness. It is essential to always be on track of your debt commitments and make scheduled payments to be categorised as a performing asset for the banks,” he explained.
Frequent Borrowing Issue
“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 could look bad on your credibility. It is always better to stick to your bank as you mutually benefit from each other, and the relationship manager ensures that your request gets approved. On the other hand, if you have an existing loan from a financial institution and apply for a new loan, your chances of getting it approved dwindle for being overleveraged. Loans against credit cards are also red flags when you already have a running loan account,” he said.
“There could be nothing wrong with your credibility. Still, if the bank’s portfolio has exceeded the limit of loan sanctions in a particular period when you’ve applied for a loan, the bank might rationalise your score to reject it de facto. Banks also match details from other financial institutions for defaulter history,” he further said.
“It may be considered a qualified report if you have a good score with comments under certain sections. You could have a pattern of repaying late on your debt commitments (DPD), or you could be a guarantor on a defaulted loan. Even the defaults in paying taxes affect your credit score. This all reflects negatively on your credibility,” he added.
“If most of your assets are pledged or mortgaged, it shows your indebtedness. If a bank cannot get hold of your asset for its security, it is difficult to sanction your application, despite everything else being favourable. Your secured-to-unsecured loan ratio should also be favourable to guarantee you a loan. Furthermore, the applicant should be aware of the EMI to income ratio, which is crucial for assessing the loan application,” he said.
“Banks have strict guidelines regarding loan disbursals with policies and laws regarding bad banks. It would help if you were diligent about managing your finances. Some banks have also started incorporating credit scores in credit card bills. You should never take a devalued score lightly and enquire in-depth about the reasons for the same. If it’s due to a discrepancy, it should be immediately reported to the concerned bank. In case of ignorance at your end, you should rectify it asap. General scores should be used as a guide to fare you through a custom score. A credit score of over 750 is considered to be highly desirable. Since the scores are openly available to everyone with a little of your detail, you should definitely consider how it changes,” he concluded.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)