Factors that affect your loan approval?

If you are planning to apply for any sort of credit facility for a purchase (home or car) in the near future, it is imperative to check your Credit Score and CIR 3-4 times each year and ensure that your ‘Reputational Collateral’ is reflected accurately. This will provide you with access to credit faster and at better terms. And rest assured that Enquiries are not added to your CIR when you purchase one directly from CIBIL.

Below are the critical attributes on your CIR that impact the lenders decision on your loan application:

Attribute 1: Payment History

This appears in the Account(s) section of your CIR. There are 2 pieces of information: the Days Past Due (DPD), and the month and year of payment that reside here. The DPD indicates how many days the payment is late that month. Anything other than “000” is considered negative by a lender. Up to 36 months of this payment history (with the most recent month displayed first) are provided in this section.

This can be understood better with the help of an example.

If you missed a payment on your credit card bill your credit history will reflect that you did not pay on time. However, once you have paid the bill in full your most recent “payment history” should reflect “000”.  For example, if you missed the payment in February 2010 and you finally paid the amount in June 2010 your payment history is likely to be reflected as follows:

DPD                000      120      090      060      030      000

Month/Year   06-10   05-10   04-10   03-10   02-10   01-10

It is important to note that while you have paid your dues in full your credit history will only reflect that as per the date you made the payment. The fact that the bill was overdue for 4 months will continue to reflect on your Credit Information Report (CIR) even after you have paid your bill.  Anything other than “000” on your payment history may be viewed negatively by the lender when deciding on your loan application.

Attribute 2: Current Balances

Also appearing in the Account(s) section of your CIR, the current balances on various loans indicate the depth of your debt. The sum of your current balances helps a lender determine your strength to take on additional EMIs, in relation to your current income. Naturally, lower the current balance, the better the chance of your loan getting approved.

Attribute 3: New Credit Facilities

If a lender observes that you have recently been sanctioned a number of new credit facilities, it would mean that your monthly outflow in terms of EMIs, are likely to have increased. Hence, it may have a negative impact on your loan application.

Attribute 4: A number of new Enquiries

If you have applied for a number of loans in the recent past, the chances of your loan getting approved may suffer. Simply because this credit behaviour indicates that you are “Credit Hungry” and imply that you are in an urgent need for money. It is likely to make lenders more cautious while evaluating your application.

(Author Harshala Chandorkar is senior Vice President – Consumer Relations, CIBIL)