Sujata planned to buy an expensive mobile
phone. She went on for months conducting her research to find just the right
phone and find out the exchange price for her existing mobile phone. Right when
she decided that this is the weekend, she will go to make her purchase, she
decided to apply for the loan. She was told that the amount would get disbursed
into her account within days and that it would not be a big deal.But, when she
called her personal banker to apply for the loan, she got a response that it was
rejected.
Isn’t it infuriating when you have made
your plan to make a purchase and your loan gets denied? As much as it seems
like a huge loss, there is nothing personal or permanent about it. There are
perfectly logical reasons behind the denied loan, and you can rectify it with a
carefully designed plan.But before you start making a plan, it is important to
first identify the reason behind the loan application getting denied.
Why would your
loan be denied?
There can be two primary factors that
affect the approval and denial of your loan application. It can either be
problems with your credit history or with the income. There are a few more
factors that could have an impact. Let us look at these:
1. Credit: Your credit history plays an important role in
determining your credit score. These two aspects are the base of evaluating
your loan application and lenders may categorize your profile as risky if they
see any significantly negative entries or any red flags related to your credit
history while
performing a credit check on your account. Below is a list of negative entries
that can break your loan application:
- Delinquent payments
- High credit card balances
- More than required credit inquiries
- A relatively new credit history
Every lender sets a minimum credit score limit and if you fall below that mark, your loan application can be denied. If your loan application is denied due to this reason, you are legally entitled to a free credit report and a letter explaining the reasons behind your loan being denied.
So get access to your CRIF credit report and go through it thoroughly to come up with ways to
tackle the issue at hand. But, if you do not receive these details with the
loan denial, then make sure you make a request and get hold of them.
Another sub-section under the criteria of income is the debt-to-income ratio. If you have more debt than is suitable for your income, then your chances of receiving new credit gets slimmer. Every lender sets their debt-to-income ratio limit, but many lenders prefer a debt-to-income ratio of 40% or lower.
If this is the reason, then plan to clear your existing debt and increase your credit score before applying for a new loan. It will help your chances of getting new credit.
Getting loan
with bad credit
Having a bad credit score will not stop
you from taking on new credit so to say but it will definitely reduce your
chances to acquire a big amount of credit. It also depends on how bad your personal or
business credit score is. If you are a
serial defaulter, then there are chances that lenders choose to reject your
loan application till you take serious steps to make it better.
You can also find a co-applicant with a
good credit history to help you take a loan. However, that is an
option with only a few lenders. On boarding a co-applicant can definitely help
you bag a loan and at lower interest rates as well, but it is their equal
responsibility to ensure that the loan is repaid on time. So, remember that you
cannot default on it.
Get started by checking your CRIF
Credit Score before
applying for a loan and make sure you have the complete information.
