Why Personal Loans are Rejected with Good Credit Score

Why Personal Loans are Rejected with
Good Credit Score?
The first criterion which determines the creditworthiness of a person is the
credit score. The credit score of a person is a numerical representation of
past credit-related behavior of the person. Taking the credit score as the
primary factor, the eligibility of a person for a loan is determined by the
lenders.
Ashok, the resident of Chennai, was in need of some urgent fund for his
sister’s marriage. As personal loans are known to be the best and fastest
way to avail liquid fund, he too decided to go for a personal loan. Prior to
applying for the loan, he checked his credit rating which was showing an
excellent score. He was confident that he would get the loan without any
difficulty.

He applied for an online personal loan and to his utmost shock; his
application was reverted with a refusal by the lender. This situation was
beyond his imagination. He went to a personal finance expert and came to
know that there are other reasons too which can make a personal loan
application go rejected. Here are the reasons which the expert has
explained to Ashok.
• A High Loan To Income Ratio– As lenders check credit score, they
check FOIR (fixed obligation to income ratio) of a person before
sanctioning a loan. Prior to approving a loan, they check if there is any
other ongoing loan of that person which he is repaying at present. The total
outgo of a person including the applied one, must not be more than 50% of
the total take-home income. If it happens, there are chances that your loan
is going to be rejected.
• Being Guarantor of A Defaulter– In spite of having a good credit score,
one may face rejection of a personal loan if he/she was ever a grantor of a
person who has been found defaulter of the same loan. When you become
a grantor to someone’s loan application, this activity of yours is recorded
by the credit bureau and reflects on your credit report. If the person for
whom you acted as a loan guarantor defaults the loan, this will even be
reflected on your credit report too. This can be one reason of getting a loan
application rejected.
• Address Marked In the Defaulter’s List– In some of the very
unfortunate scenario, it happens that your address has become the reason
for rejection of a loan. If any person sharing the same address has
defaulted a loan in past, the address will be listed as defaulter’s address by
the credit bureaus. A fresh application from the same address is counted as
an application from defaulter’s address hence lenders reject such
applications.
• Poor Credit Score of The Co-Applicant– If you are applying for a joint
loan and your co-applicant has a poor credit score, your loan application
may be rejected. Being a co-applicant of a person with a bad credit report
can result in facing a rejection.

• Insufficient Income– Along with many other criteria which ensure a
person’s creditworthiness, income is also one of them. Every lender keeps
a criterion of a minimum income below which they don’t grant a loan.
Though your credit score is excellent, your loan can be rejected if your
cash flow is less than the minimum income line mentioned by the lender.
• Unstable Income Source– Along with income, lenders check the
employer of salaried persons and the business stability of self-employed
persons to check the regularity of income. A stable and regular income
source is a must to repay the loan on time. If the lender is not satisfied with
the source of income of the applicant, the loan application can be rejected.
• Files Bankruptcy In Past– Bankruptcy is a situation when a person
declares that he is unable to pay his debts. Hence banks take action such
as liquefying his assets to recover the lent money. If a person files a
bankruptcy, this action of him will be recorded on his credit report. So any
lender will know this fact while checking his credit history. Such records
can make lenders reject a loan application.
• Loan Rejection in Past– A loan application rejected before can act as the
reason for getting the next application too rejected. A frequent loan
application shows a credit hungry behavior of an applicant. When a lender
gets to know that his previous loan applications are rejected, he becomes
more conscious and this may result in rejection too.
• Mistakes On The Application– One must be very careful while filling the
loan application form. Any mistakes in the application or any wrong
information in the application can make the lender reject the application.
Whether it may be an online personal loan application or a conventional
one, one has to provide the genuine information without which a loan can
be rejected.