Poor credit score
Credit information bureaus maintain records of every borrowers credit history. The most popular among these bureaus is Cibil. It updates its records and presents a credit information report on each borrower whenever a bank or a financial institution needs it. Banks disburse loans on the basis of this information. In addition to your credit score, the report has a list of all your credit-related transactions and payments on all loans across different banks. It also has information on your enquiries if you simply make an application for a loan or credit card. If banks find that your credit score is poor or your repayment history is not up to the mark, then your personal loan application could be straightaway rejected.
Each bank may draw up a list of defaulters or prohibited borrowers to whom they will not lend. This can be based on various factors. For example, your house address may be on the defaulters' list if the previous occupants were defaulters. Certain types of jobs that do not guarantee a regular income could be a no-go area for banks. In such cases, your personal loan application will not go through.
Too many loans
Your loan-to-income ratio is calculated by banks before granting you a loan. All your present liabilities and corresponding EMIs paid are taken into consideration. Since personal loan is unsecured, banks will give extra importance to your capability of servicing it. If they find that your loan book in relation to your income is high compared to the usual norm, your loan application could be rejected.
Forget serviceability of your own loan; if you have been a guarantor to someone elses loan, but have not paid it when that borrower defaulted, this will also show up in the Cibil report. You will be treated as someone who has not been able to service a loan and your loan may not be granted. It is important to think twice before becoming a guarantor.
If your earlier application for a loan or a credit card in the same or any other bank has been rejected, your current application also may not go through. Apply for a loan only when you need one. Sometimes, people carry 5-8 credit cards. It is definitely not smart and can hamper your credit standing adversely.
Some banks require borrowers to have at least 2-3 years of tax-filing history. If you have just started filing your income-tax returns or have a history that is less than the banks requirement, your personal loan may not go through. Although this is not a universal requirement, many banks insist on seeing your past returns' copies, along with the salary slip, before granting a personal loan.
If you have been switching jobs too often or if your company is on a firing spree and this is public knowledge, the bank might doubt your job stability. This is an unsecured loan and your income stability is of paramount importance to the bank. In such cases, your personal loan could be rejected.
Taking a personal loan is not that tough if everything is in order. Keeping a clean credit record and checking your credit report before you apply for the personal loan can help avoid rejection.
n The writer is CEO, BankBazaar.com