Some people expect banks to roll out the red carpet for them because they have stellar scores. But that is a myth. Scores above 750 improve your chances of qualifying for Credit facilities but they are no guarantee that you will certainly get yourself financed.

Gone are the days when banks would give preference to those who would boast of a high credit score. Today, credit institutions are more interested in the overall package; that is the overall credit and risk profile of the borrower, their past credit behaviour and other such factors.

Here are five reasons on why your Loan application can be rejected inspite of a high credit score:

1. High Score, Low Income: You may have a score that earns you a pat on the back, but your income is not upto measurable standards. A credit score marks you only on your behaviour as a user of credit facilities. Let’s say you have been working only for the last eighteen months or so, with a monthly salary of 25K. You got your first credit card roughly a year ago and you have used it for less than five thousand bucks every month. Possibly just for fuel, phone recharge, dining etc. You are not in some heavy debt, just a small bike loan and one credit card.

Undoubtedly within a year, you would have a score to crow about. But does that mean you are prepared for the next big jump? Not in the eyes of lenders. They have their own benchmarks. So even though you have a praiseworthy score but with a low income you can forget about big ticket loans.

2. Debt to Equity Ratio: Lenders will look at your debt burden ratio. They will assess how much of debt you can take given your income. Lenders usually cap the ratio at 50%. This means that they do not expect you to pay more than 50% of your monthly income in collective EMIs. They hold the idea that 50% of income should be retained by the borrower to keep them from being stressed with debts.

So you have a high income and have been handling a SBI car loan, a personal loan and two cards simultaneously for quite some time. You have clearly displayed your ability & intent to repay your debts. Yet your home loan application doesn’t make through. It seems you are already overleveraged and there is no further room to take on additional credit responsibilities. In this case you will have to pay off your existing debts before you apply for further loans.

3. Derogatory Remarks: You settled a couple of payments about seven years ago. Those accounts have been flagged as “settled” in your CIBIL report. Over the past seven years your score seems to have bounced back and it is positively high. But when a lender will review your score, it will also review your credit report alongwith it. A derogatory remark such as “settled”, “filed suit”, “wilful default” etc can deflect lenders.

4. Incomplete Documentation: Bank executives help and guide on the documents required to be submitted alongwith the loan application. They even offer to accept an alternative document should you not have a particular paper ready. However, they cannot overlook a missing document. If you are unable to produce any document from the list given to you by bank officials then it can lead to rejection of your loan application.

5. Defaulter’s List: CIBIL does not maintain a defaulter’s list but perhaps your name features in the bank loan defaulter’s list, over an old and forgotten unpaid debt. As part of their process of examination of an application, lenders check every potential borrower for their name in the bank defaulter’s list. All banks maintain it and share it with RBI so every bank can check for this list centrally.

For example, you took a HDFC personal loan in Bangalore back in 2010. You did not pay the loan in full and decided to forget about it. Later in 2017, you apply for a car loan with ICICI bank, New Delhi. ICICI will check the loan defaulter list with RBI which will show all details of default by you. So, one cannot escape being caught due to centralised processes.

Things of your past don’t just melt in background. Be aware of the consequences of missing payments. It is best to review and self monitor your own report before you let a lender take a peek into it.

A person with high credit score may face rejection but a person with a borderline low cibil score may be approved. It all depends on your credit behaviour. A steady rise in bank’s NPA has also led for banks to become more stringent in their vetting of borrowers.

While one tries to improve cibil score, it should only be used as a guideline, as other factors such as quantum of outstanding debt, household income and others will also be taken into consideration when determining your eligibility.

The post 5 reasons why you can still get rejection with a high credit score appeared first on Credit Sudhaar Blog.