28 Feb Why Does High CIBIL Score Not Guarantee Loan or Credit Card?
One of the biggest myths associated with High CIBIL Score is – Approval of loans or credit cards instantly. But, for sometimes even though you’re having a high credit score, it won’t guarantee a loan or a credit card. All this is because of your credit behavior. Credit refusal relies not only on your CIBIL score solely, but also because of your entire credit history. Therefore, it is important to understand about your credit behavior as a potential borrower.
Significance of Credit Behavior
A credit score is a very complex topic to understand as it is a derivative of various factors that reflects the Credit Behavior of the borrower. Credit behavior is all about how you handle the borrowed money. If you pay off all your debts and EMIs on time then banks mark you as a potential customer deserving a good credit. Unlike, if you are keep on delaying your loan and credit card payment then banks and financial institutions mark this as bad credit behavior. A high CIBIL score turns as a good score until and unless you maintain consistency in paying debts on time.
Credit Utilization and Credit Behavior
Credit utilization implies the amount of credit you have utilized as expenses in accordance with your credit card balance or limit. It additionally considers the current credit limit that is being utilized. For instance, on the off chance that your balance is ₹300 and your credit limit is ₹1,000, at that point your credit usage for that credit card is 30%. It is prudent to keep your credit use proportion under 30%. The credit score can be drastically affected if you have the tendency of using more than 30 per cent of your credit limit.
Let us assume that your CIBIL score was 800 six months ago but because of your propensity of excessive credit use, it has dropped to 750. We are all aware that banks and financial institutions require a minimum score of 750 to offer an extended credit line. For the bank, excessive use of credit is lucrative, as more and more money goes out faster than inside the system. This is viewed as one of the parameters of bad credit behavior and consequently, your loan application is probably going to be rejected.
Non-Performing Assets (NPAs)
A Non-Performing Asset (NPA) refers to a loan or advance for which the repayment was not made after the due date of 90 days. It is actually considered to be a bad debt in terms of regularly scheduled payments. For example, if a company with a loan of approximately 10 million with interest-only payments of 50,000 per month fails to make a payment for three consecutive months, then the bank will identify that company’s loan as non-performing in accordance with its guidelines. A loan may also be known as non-performing if a company makes all interest payments but is unable to repay the principal on maturity.
In recent researches, it came into spotlight that NPAs across India stand at ₹100 Millions. This is exceptionally perilous for the monetary strength of our nation and has consumed a piece of India’s GDP. Hence, banks are under a great deal of pressure from the RBI to control the rising NPAs. So, banks are bound to dismiss a loan or credit card application if the borrower has a bad credit behavior. Therefore, banks are concentrating more on credit behavior and credit score before approving loans or credit cards of an individuals or companies.
What If Your Loan Gets Rejected Despite High CIBIL Score?
If you have a good CIBIL score but your loan application is denied, you should raise the issue with the concerned bank immediately, and then the bank will tell you the exact reason for denying your loan. Raising a concern may help you in finding out what’s wrong with your credit behavior and also you may get a chance to fix it. So, it is always recommended to maintain a good credit behavior for approval of loans of credit cards irrespective of your credit score.
What Are The Ways To Improve Your Credit Behavior?
Although there are many ways to enhance your credit score, likewise there are many steps to follow for the improvement of your credit behavior.
1. Always monitor your account history
Once you’ve got your credit report, look for payment accounts due. Make sure you pay the full amount outstanding on or before the due date on each of your accounts.
2. Maintain optimal credit utilization
Keep the credit usage level at 30%. For instance, if you have a credit card or a store account with a limit of 1 000, try to keep the balance amount below 350
3. Identify errors and resolve them instantly
Look for any errors and false information in your credit report and take active steps to pay all of your outstanding debts so that you can remove this information from your credit report. It’s better to contact CIBIL repair agency for resolving these types of misleading errors.
4. Focus on a Credit Mix
Maintain a healthy mix of both secured and unsecured loans. That will set up a strong financial history. Ultimately, banks can recognize that you’re willing to repay the loans irrespective of loan types.