Most of the investors take some kind of loan and when they are not able to pay the EMIs on time or default on the loan, their CIBIL report gets messed up and they don’t get further loans in future. Have you ever had a rejected loan application? I will explain why loan application gets rejected and the actions which need to be taken to ensure that it does not happen. To understand why CIBIL score is important, I do suggest that you read some of my previous blogs: Credit score – Why is it important and how to improve, Taking a home loan? Have you checked these 9 home loan tips and 4 ways to know if you are getting into a debt trap.
When a borrower approaches a bank for taking a loan, what the bank does is to check the credit history of the borrower by contacting a central agency like CIBIL which maintains the records. But do note that CIBIL reports can contain mistakes which could be either be our mistakes like ignorance or the errors could happen due to the bank mistakes which feed the data about your history to CIBIL periodically.
While the intentions of such credit bureaus are very good, do note that they can have inaccurate data as the report gets information from multiple sources. It can be considered as a systems issue but it is the borrower who eventually suffers.
Here are some reasons for the mistakes. This is not an exhaustive list.
While there is no guarantee that we will not have any issues, still there are a few ways to get ourselves better prepared in ensuring that loan application is not rejected.
Each of the four agencies needs to provide one free report to us every year. There is a simple and easy way to ask the credit scores. I have written a blog on that previously. We must keep checking it regularly. There can be a small cost to pay for a detailed report. We can download this report instantly once we have answered a few security questions correctly. We should do that too, especially before going for a big loan, just to ensure that they have all correct information. If your score is good, it can also help you in negotiating a good interest rate.
Once you have downloaded the report and seen that all information about you is correct, then congratulations. But, if something is mis-interpreted or is incorrect, then there is some work to do. You need to get it corrected. Your first point of contact is CIBIL and you need to raise a CIBIL Dispute Resolution at https://www.cibil.com/dispute. It should be noted that CIBIL on their own do not make a change in report. They should only be viewed as aggregator of information they received about you from various lenders. CIBIL is a mediator between you and the lender, and once the lender gives them a go-ahead, they will update the report. This can become a source of contention in which case they would refuse to give that go-ahead.
We now need to contact the lender directly with all the information and proofs. As an example, if you had taken a loan and according to you the loan is paid-up, but the lender does not believe so, so what you need to provide to them is a loan closure letter which they may have given to you. But what if you had not collected such a letter? Then the dispute gets bigger and they may have started charging penalty and delayed interest. Therefore, every time a loan is completed, we should ask for this document.
If there is an outstanding amount which you had forgotten about it, then it is best to pay the outstanding amount. If there is a dispute and you had not collected the no-dues letter, even then it may be in your best interest to negotiate like the waiver of the penalty/interest and pay off the loan, so that they can change the remark against your loan. But, do ensure that remarks against you are not mentioned as “Settled” or “Written off” as this can have a significant impact on your credit score. It will take a significant amount of time to “go away” from your report, which could be as high as 7 to 8 years!
Not getting a loan that you truly deserve can be stressful financial as well as mentally. You can always reach out to the consumer court or banking ombudsman. But do know that they will talk to you only after you have given them documentary evidence of what you have done to resolve this issue by contacting CIBIL and the lender. Therefore, please keep documentary evidence of all the communication. If all goes well and they are satisfied with their due diligence that it is not your mistake, then you may be awarded compensation. But the entire process can be long and you need to prepared not to get frustrated in this entire journey and that you have the patience.
Hope this blog provided you some information on how to go about correcting the score and what to do in case of a reject loan application. If you have any questions, please do provide your comments or reach out to us. To read more blogs on personal finance topics please read them on our website. You can also know more about the services and can also subscribe to the youtube channel.