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When you apply for a loan from a bank, the financial institution will evaluate your capability to pay back the borrowed amount through different factors. Such factors include your income, age, salary and credit information report. Your credit information report comprises of your credit history and CIBIL score, and the CIBIL score is an ultimate deciding factor when it comes to loan disbursement. Therefore, it is ideal to know your CIBIL score before applying for a loan. A regular check-up of your CIBIL credit score will allow you to fix any discrepancy in your report before applying for a loan.
As mentioned before, the first thing any bank does is check your CIBIL credit report during the loan application. When a bank or credit institution makes an inquiry, it is known as a hard inquiry. A hard inquiry downgrades your CIBIL score; hence, you should avoid multiple loan applications from different banks simultaneously, as every rejection will further reduce your CIBIL score. Also, if your recent loan application has been rejected, do not immediately apply for another loan as it will negatively impact your CIBIL score.
Apart from having a poor CIBIL score, listed below are a few factors which can lead to loan rejection.
How to achieve a good credit score?
There are multiple ways to improve your existing credit score. The primary effort is to payback all your unsettled loans and outstanding debts, as repayment history accounts for nearly 30% weightage of your CIBIL score.
Should I cancel my credit card to improve my CIBIL score?
No, closing your credit card account will only reduce your existing credit limit and will push up your credit utilization ratio. A high credit utilization ratio will only lower your credit rating.
What is a joint loan application?
A joint application is an application you undertake with a co-applicant. This increases your chance of availing a loan if your co-applicant has a high CIBIL score and both, you and your co-applicant are entitled to tax benefits as per Sec 80C of the Income Tax Act, 1961.
What is credit utilization ratio?
A credit utilization ratio is a ratio which represents your spends to income, especially when it comes to a credit card limits. For example, if your credit card has a limit of Rs. 2000 and you utilize Rs. 800 a month, then your credit utilization if 40%. It is better to keep a low credit utilization ratio.
How to rectify a credit report?
If there is any discrepancy in your credit report, you will have to contact the respective credit bureau and submit a dispute resolution form. This process usually takes around 30 days.