Personal Finance

Loan application rejected despite high credit score? These may be the reasons

Updated : July 09, 2020 04:41 PM IST

But sometimes despite having a good credit score, the loan application may get rejected.

Credit score is a primary indicator of creditworthiness. A good credit score is considered important to get the loan approved from any bank or other financial institution. But sometimes despite having a good credit score, the loan application may get rejected.

This is because lenders may also consider alternate factors to lend money.

"Lenders work with external data sets (utility bill payments), mobile-based data (usage insights) and income sources (bank statements) to determine creditworthiness and repayment risk factors about existing and future customers," says Bala Parthasarathy, chief executive officer and co-founder, MoneyTap.

"Even in the absence of credit histories for new to credit (NTC) customers, lending companies use data analytics and AI, ML to extend their services to a larger segment of people that have previously not been served by the traditional financial organisations," he added.

Also read: How to maintain a good credit score in times of COVID-19

Here are some of the factors that lenders may consider apart from credit score:

Monthly Income

This is the most important criterion for loan application screening.

"The lender evaluates the repayment capacity considering income, stability of income source, number of dependents etc," suggests Pranjal Kamra, chief executive officer, Finology.

EMI to Income Ratio

This is another aspect considered while approving a loan application.

"The chances of new loan approval are higher if the borrower's total existing EMI repayment amount is much less than 50 percent of their monthly salary," explains Parthasarathy.

Also read: Is it okay to take a personal loan to pay off credit card bills

Age

The age of the borrower is considered to determine the financial stability and loan tenure. Many a times, individuals of higher age bracket (more than 60 years) do not get approved for a loan, according to Kamra.

Work Experience

Most of the banks and NBFCs ask for a minimum of two years of working experience to minimise the risk of default.

Job Changes

Frequent job changes is considered a sign of an unstable career and hence, such individuals are regarded as less creditworthy, say experts. For availing a long-tenured loan, one must avoid too many job changes for sometime.

Other Factors

According to Kamra, lenders may also consider the collateral and margin amount while applying for a secured loan. Also, the credibility of a co-applicant is a prime factor for evaluation in case somebody wants to avail a joint loan.

"To assess ability to pay, some lenders may even require employers' profile and vintage of employment. Others may also ask for postpaid/prepaid mobile service provider account, the type of car owned, and type of house used to live," adds Omkar Shirhatti, Co-founder & CEO at Karza Technologies.

Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

Loan application rejected despite high credit score? These may be the reasons

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