Ravi is a 30-year old working in an IT company. His job pays him in six figures. He invests his money wisely. He pays his taxes and bills on time. And he has a good Credit Score of 760. But, when he applied for a Car Loan, his application got rejected. Why couldn’t Ravi get his loan sanctioned in spite of having a good Credit Score of 760?
You’ve heard about CIBIL and CIBIL reports, right? If not, then CIBIL is the Credit Information Bureau of India Limited and it keeps a record of your entire financial history – the loans you have taken, the Credit Cards you own, your repayment history and your defaults. Most banks and financial institutions are their clients and they provide the information of all their customers (like you) to CIBIL. A CIBIL report is your detailed credit report which contains your Credit Score, payments history and credit remarks. There are other credit information firms like CIBIL who dish out Credit Scores and Credit Reports and banks do use them. These firms include Experian and Equifax. Usually, the Credit Score and Credit Report offered by the firms are very similar. Any differences will be minor.
Most of us are under the impression that having a high Credit Score (above 750) is the key to getting loan approvals from lenders. However, there have been many reports of loan applications getting rejected even though the borrower had a good score, just like in the case of Ravi.
So, does a high Credit Score guarantee a loan or higher credit limit? It is pretty evident from Ravi’s example that it doesn’t. Nowadays, a good credit rating isn’t sufficient for lenders to approve your loan application. Lenders are giving more weightage to the credit remarks in your report. Yes, it matters too! In fact, credit remarks may matter more than your score in certain cases! Read on…
Additional Reading: How To Read Your CIBIL Report
Let us assume that you have two kinds of credit facilities – a Credit Card and a Personal Loan. Your credit report will have remarks for each of these accounts and their current status. Now, let’s say that you have closed your Personal Loan, the remarks provided for the same can be ‘Written-Off’, ‘Settled’ or ‘Closed’. Remarks such as ‘Written-Off’ and ‘Settled’ are considered as negative or derogatory. These remarks indicate that you defaulted on your payments or you settled the loan with a lesser amount.
If you decide to go for a settlement with your bank, it can be termed as ‘settled’ and might affect your loan applications in the future. Even a great salary and a good Credit Score will not get you a loan then.
You can find all your credit remarks mentioned under the ‘Account Information’ section in your Credit report. Considered as the most important section in the Credit Report, it provides the details of all your loans and Credit Cards. It contains your account details and the status of the account. Account details include the lender/s name, credit facility type (Credit Card, Personal Loan, Home Loan, etc.), account number, ownership type (single, joint, guarantor), the date on which the account was opened, loan amount, current balance, overdue amount (if applicable) and a record of the payments made.
The status of the account specifies whether your account/s are clean or not. For each of your accounts, you’ll find status remarks such as suit-filed/wilful default, written-off, or written-off and settled. As mentioned earlier, these are negative remarks and affects your credit eligibility. If you have such remarks in your report, you are least likely to be favoured by lenders.
You’ll also find a DPD or Days Past Due section. This section contains information on how many days late a payment was made. The types of classification in this section are Standard (STD), Special Mention Account (SMA), Sub-Standard (SUB), Doubtful (DBT) and Loss (LSS). If you see a ‘XXX’ in your DPD for any of your accounts, it means that your creditor bank hasn’t reported the information for the particular month to credit information firms such as CIBIL. Remember that any other classification rather than ‘STD’ or ‘000’ is considered as negative by lenders.
There is also a ‘Consumer Dispute Remarks’ section in your Credit Report. This is a value-add provided to consumers (i.e. you) where you can add special remarks about any of your accounts.
This is a three-digit number between 300 and 900 and it represents your creditworthiness. Lenders look at your Credit Score to assess your credit behaviour. A low credit rating is an indication that your chance of defaulting on payments is high. Though there is no specific cut-off high score, a score above 750 is considered to be good.
Additional Reading: Tips To Improve Your Credit Score
What matters more?
As mentioned earlier, a credit rating of 750+ is desirable. But it doesn’t necessarily mean that you’ll get a loan for sure (remember Ravi?). You may be more likely to get a loan even if your score is lower than 750 but your remarks are good. So, the point here is that you should aim to keep bad remarks off your report. If they aren’t, then you should try to rectify the bad remarks. As a result, your credit rating will improve and you won’t have to over-focus on increasing it.
Tip: Obtain your credit report and analyse it at least a few months before applying for a loan. If there are any negative remarks or if your score is low, make sure you take action to fix it before applying.