Why Lenders May Still Reject Your Loan Even With A 750-Plus Cibil Score

Typically, a Cibil score of 750 and above is considered a mark of financial discipline. Most banks and lenders view this as an indication that the individual has managed credit well in the past. 

However, a good score itself does not guarantee the approval of a loan. There are several other factors that lenders check before issuing credit.

Here are five reasons why lenders can still reject your loan application even if you have a 750-plus Cibil score.

Unstable or Irregular Income

Lenders must be sure that the customer can repay the loan in due time. Even though your credit score shows your past history of payments, it does not reveal your present stability of income. For instance, if you are self-employed and receive a different amount every month, or if you have changed jobs in quick succession recently, lenders will think that you are a high-risk customer.

Banks usually consider applications with a continuous source of income for a period of six months up to one year. A continuous track record of employment gives confidence in the case of salaried people. A self-employed person will need to show stable business income as shown by income tax returns and bank statements.

High Debt-to-Income Ratio

Your debt-to-income ratio is a comparison of what you owe each month to how much you bring in. Lenders can decline you even though you have an excellent credit score, because your loan obligations for the month are too high in relation to your income.

For instance, if you are earning a monthly salary of Rs 50,000 and are already repaying Rs 25,000 in EMIs, your debt-to-income ratio is 50 per cent. Most lenders want this to stay below 40 per cent. A high ratio indicates you may not be able to afford more debt, even if you have never defaulted on repayment in the past.

Multiple Loan or Credit Card Applications

Every time you apply for a new loan or credit card, that lender does a "hard inquiry" on your credit report. If you have too many such inquiries within a short span, that makes you look credit hungry. It simply sends a signal to lenders that you may be taking on too much debt at once, and this increases the risk of default.

Let’s say you apply for three different personal loans within a month; that could reduce your chances of approval for all. The best thing you can do instead is research the options, check your eligibility on loan calculators, and apply when confident of meeting the lender's set criteria.

Errors in Credit Report

Sometimes, it may not even be your mistake. The errors on your credit report may include incorrect account information and outdated repayment records that might reflect adversely in the eyes of a lender.

Imagine your credit report still showing an outstanding amount for some loan that you had paid off years ago. A single mistake may make a lender decline your application. Review your credit report from time to time and object to the credit bureau in case of any discrepancies.

Incomplete or Incorrect Documentation

Banks and financial institutions require a lot of documentation to validate the applicant's identity, income level, and existing liabilities. A single missing, outdated, or inconsistent document may get your application rejected.

For instance, submitting wrong address proof, wrong or mismatched signatures, or missing salary slips for the recent months might delay or defeat the approval of the loan application. Ensuring that all documents are updated and correct saves time and reduces the chance of rejection.

What You Can Do

While a good Cibil score has its plus points, that needs to be complemented with an overall good financial profile. Maintain stable records of income without too many ups and downs, avoid multiple loans at one time, and keep your debt-to-income ratio as low as possible for your application to be approved.