Does Loan Rejection Affect CIBIL Score?


  • Have faced a loan rejection? Your CIBIL score might have come down
  • But you can get it back on track! Read this post to know the same

When your loan is rejected by a bank or NBFC, it could be due to your poor CIBIL score. With the rejection, the CIBIL score will dip further. And the rejection reduces your chances of borrowing further. The low CIBIL may be due to non-payment of debts, debt settlement, high credit utilization, etc. There are several reasons for your low credit score, and to improve them, CIBIL Transunion helps you. Customers can subscribe to the paid CIBIL plans and check the credit report to find the real reason for the poor score. Or you can check the CIBIL report at Wishfin, a popular financial marketplace that also is the official partner of the credit bureau, for FREE. Read this post below and know how the rejection impacts your CIBIL score and the ways by which you can improve the same.

Free CIBIL Score Check

A Brief Overview of CIBIL

CIBIL Transunion is a credit bureau that helps you get a free credit score in India once a year. Whenever you apply for a loan from a bank or non-banking financial company, the lender will evaluate your loan capacity based on factors like income, age, salary and credit score. Your credit report comprises your credit history and repayment record.

Impact of Loan Rejection on your CIBIL Score

When you apply for a loan, the lender makes a credit inquiry, which is known as a hard inquiry. This affects your CIBIL score, so you need to be careful while applying. A rejection will reduce your credit score. You must find out the reason for rejection so that you do not commit the same mistake again.

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Reasons for a Loan Rejection

Your poor CIBIL score can be due to many reasons. To find out what affects your credit score, you should check the credit report. See the pointers below to know the common reasons for a low CIBIL.

More than One Loan: If you have multiple loan accounts in your name, banks are less likely to approve your loan due to higher credit risk. And the continuous dependence on loans can make a bad impact on your CIBIL score.

Defaulted Loans: If you have defaulted on loan payments and act as a co-applicant or guarantor in a loan, it will affect your CIBIL score. And when you apply for a loan with default history, the bank might reject your application.

CIBIL Remarks: If there is no default on your credit record, that doesn’t mean it is the only issue on your CIBIL score. If you make a debt settlement with your bank, the credit report has a remark of ‘settled’, which makes it difficult to borrow an unsecured loan, but you might get a secured loan from the bank if you provide a security. In case you have applied for an unsecured loan i.e. personal loan despite knowing that you had made a debt settlement in the past, the lender will more likely reject the loan application.

Employment Status: The less reputed employer and incidents of late salary credits can also lead to rejection. If that happens, the credit score will come down. Banks provide loans to customers who have the stability of income with valid proof and documents.

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What to Do to Get CIBIL Score on Track?

To improve the CIBIL score, you need to make sure that you pay the debts and due payments of your loans or credit cards. First, you need to check the credit report and find the reason why your CIBIL is low. After that contact the credit bureau or bank to take help in CIBIL improvement. And when the CIBIL is improved, apply for the loan you need. See the pointers below to know what are the tips for CIBIL improvement.

Debt Payment: Make payments for your previous loans in Equated Monthly Installment (EMI). CIBIL improves gradually and takes time to improve your score as per your payments.

Credit Utilization: If you have a credit card, it is necessary to use it carefully, otherwise, it will affect your CIBIL negatively. You need to make sure that the credit utilization ratio won’t get above 30% of your credit limit.

Select a Suitable Loan Tenure: Opt for a suitable loan repayment period when you apply for a loan. Now the word ‘Suitable’ here means the tenure has to be optimized keeping in view the timely monthly payment while also ensuring the overall interest payout is controlled.

Pay Overdue: To improve the credit report post settlement, you can pay the due amount of your settlement. It removes the ‘settled’ remark from your report and you can borrow a loan whenever you want.

Avoid Taking Multiple Loans: When your credit score gets improved, try not to borrow more than one loan so that it will be easy for you to manage it without any due or default.

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Borrow Mixed Loans: Maintain a healthy CIBIL score by borrowing different types of loans. Your credit report must contain secured and unsecured both types of loans so your credit profile attracts lenders to lend you money based on the creditworthiness.

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