While there are a wide array of Credit Cards and loan options available in the market, in reality, lenders are extremely cautious before they lend money to borrowers. Regardless of the fact that your Credit Card or loan may be pre-approved, all Credit Card issuers and loan providers adhere to their internal guidelines before sanctioning a loan or a Credit Card.
This is why it is important for you to understand the major reasons lenders reject loan or Credit Card applications. We’ve put together a list of 8 such reasons that could dampen your hopes of a successful application.
1. Insufficient or Poor Credit History
Credit Card and loan providers always refer to your Credit Information Report before taking a decision on your loan application. If you have had problems repaying debt in the past, like on a Credit Card or loan, for example, it will show up on your credit report and may result in your loan application being rejected.
Remember, it is always advisable to check your Credit Score before applying for a loan or Credit Card.
Check Points On A Credit Report
- Bad Credit Score: Your Credit Score is calculated and based on your credit behaviour. The points range from 300-900. Higher points mean a better score. A score above 750 is acceptable and makes you eligible for loans. However, do note that the final decision on granting a loan or a Credit Card lies with the issuer or issuing bank.
- Financial delinquency: Credit Card and loan providers not only look at the type of delinquency, but they also consider how long it’s been since the non-payment of a particular loan or outstanding Credit Card bill. A 90-day late payment on your EMI or Credit Card from six years ago won’t hurt as badly as one from six months ago. So, stay on top of your payments!
- Too many Inquiries: Applying for too many Credit Cards and loans within a short period can lead to the denial of your Credit Card application.
Additional Reading: Is Your Credit Score Good Enough To Get You Your Dream Job?
To Maintain A Higher Credit Score, Follow These Rules
- Always pay your dues on time.
- Do not max out your credit limit.
- Do not take too many unsecured loans without closing out old loans.
- Avoid too many hard inquiries.
- Monitor your co-signed, guaranteed and joint accounts every month.
- Check your credit report for inaccuracies from time to time.
2. You do not meet the minimum age criteria
3. Unstable Jobs
Inconsistent work history could land you in trouble when applying for a Credit Card or a loan. Lenders associate job consistency with repayment capability.
The minimum expectations are six months in the current job with a total work experience of more than 1 to 2 years. Switching jobs every six months may not be very well received by issuers. Additionally, you will also need to show the same consistency with regards to your residential address.
A successful application also depends on whether you meet the minimum income requirement. However, this varies from lender to lender. Your application could get rejected if you do not meet the minimum income criteria set for the bank you wish to apply for a loan or Credit Card with. Even the co-borrower, whose income is considered for loan eligibility, has to meet these requirements.
Additional Reading: Myths About Credit Cards That Won’t Go Away
5. Negative Field Investigation or physical verification
Before sanctioning a loan, a lender will initiate the physical verification of your home and workplace. They will confirm your stability and standard of living through this process.
Your application has a high chance of being rejected if there is a discrepancy in what you’ve stated on your application against what they see physically. Eg: incorrect home address or incorrect work address
6. Too many EMIs or multiple cards
If you are already repaying multiple EMIs and the total amount paid each month is more than 50% of your monthly income, you risk being denied a loan or a Credit Card. While there is no defined maximum number of cards that one person can own, most banks might be less inclined to issue new cards if the applicant already has a significantly large number of existing cards.
7. Poor Banking
While lenders verify income documents for eligibility calculation, they also review your bank accounts to understand your banking behaviour. If the crediting of your salary is untimely or inconsistent, or you have an insufficient balance in your account that makes your cheques bounce, then you’re at risk of being denied a loan or a Credit Card.
For salaried individuals, it is mandatory to provide the last six months’ salary account statement, while for self-employed individuals, the last twelve months’ bank statement is required. There should be no inward cheque returns and no minimum balance charges in your statement.
8. Property-specific rejection reasons:
a) Property Valuation: Before approving a mortgage loan, banks and financial institutions always do the valuation of the property, which checks for the property value, the age of the property, construction type, and quality, locality, sanction plan and the area of the property.
Loan providers have policy guidelines on the minimum acceptable property value. The minimum value varies from region to region and can range from Rs. 5 lakhs to Rs.15 lakhs. You can be denied a loan if the value of your property is less than the acceptable guidelines of the loan provider.
Banks avoid funding against a property that is more than 20-25 years old. You may be asked to offer additional property as security to mitigate their risk if the age of your property is more than their acceptable limits.
If your property is not located within the permissible limits, or is not constructed as per the sanction plan or is unsaleable due to any reason, then the bank reserves the right to reject your mortgage loan.
b) Legal or Title Verification: You are always expected to provide the complete chain of titles or property documents before you get approval for your mortgage loan.
Whenever you buy a property, it is always advisable to understand and collect the complete chain of titles from the seller. Understanding the title of the property refers to knowing “who sold the property to whom and when”.
Banks sometimes accept only the last 13 years’ title documents in case there is any missing previous title. You should always consult a property lawyer before buying a property and should get the title verification done at your end. The lawyers should be able to guide you in case of any missing title document.
Now that you’re aware of the reasons for rejection, you may want to be diligent and wise about your choices.
And if you want to go ahead and apply for any of these products, we have a smorgasbord of different offerings from different issuers. Care to check?