Many people are under the misconception that if their CIBIL score is 750 or above, the bank will give them a loan instantly and without any inquiry. A CIBIL score above 750 is considered very good, but it does not necessarily mean that the bank is bound to give you a loan. That is, a good credit score is not a guarantee of getting a loan, but is only part of the bank’s process.
Many a times the loan applications of customers with 750+ CIBIL score are also rejected by banks in one fell swoop. The bank not only looks at your past loan repayment history, but also makes an in-depth assessment of your current income, expenses and financial habits. Let’s know what are the reasons due to which a loan can be rejected despite having a good score.
1. Excessive EMI (FOIR’s Rule)
Before granting a bank loan, it specifically looks at how much of your monthly income is already being paid off the old loan. This is called FOIR (Fixed Obligation to Income Ratio). If more than 50 percent of your income is already going towards ongoing EMIs or credit card bills, the bank may find it difficult for you to pay the new loan EMIs. In these circumstances your loan application may be rejected despite having a CIBIL score of 750+.
2. Overuse of credit card limits
If you consistently use a large portion of your credit card limit, it directly affects your loan application. In financial language it is called Credit Utilization Ratio. For example, if more than 30 to 40 percent of the card’s total limit is constantly being used, the bank sees it as a sign of your poor financial condition and excessive need for money.
3. Job Instability and Hard Inquiries
Banks generally consider customers with fixed incomes to be low risk. If a person changes jobs frequently or works in one place for a very short period of time, the bank feels uncertain about his future income. Also, if you apply for a loan from several banks at the same time, your credit report will show multiple ‘Hard Inquiries’. This makes the bank think you need the money badly, which creates a risk.
4. Credit mix and effect of being a guarantor
The type of loan you have in your credit history is also important. If you have only unsecured loans like personal loans or credit cards, the credit mix is not considered balanced. Also, the biggest thing is, if you have become a guarantor (guarantor) in someone else’s loan and that person defaults in paying EMIs, it directly marks your profile. Due to this also your loan does not get passed.
So, just having a good CIBIL score is not enough. To get a loan easily, you should use your credit limit properly, maintain a stable job and avoid becoming a guarantor in any wrong loan. Only a strong financial profile can get you a loan easily.