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Has your loan application been rejected? CIBIL could be behind it!

Monday, August 13, 2012 by Madan Mohan


Sachin Joshi (name changed) is a production engineer working with a car manufacturing company. Having a dream job in his hands, he was beaming with confidence and had an air of success about him. His job ensured him a hefty pay cheque that would take care of all his expenses.

In the spirit of growth he planned to buy his dream house in a plush locality in Gurgaon. Amid this happiness he was not prepared for what the future had in store for him. His home loan application was rejected. It was unclear as to on what grounds his loan application was rejected. His job was enough to take care of the equated monthly installments (EMI) of the loan. He had already paid 20% of the price to the owner. There was nothing that appeared to have gone wrong with his loan application. He rushed to his bank branch. The loan officer made it clear that Sachin's credit score was very low and hence the bank had rejected his home loan application.

Like Sachin, there are many prospective borrowers, nowadays, who experience such shocks for which they are totally unprepared. Credit Information Report (CIR) prepared by credit information bureaus like Credit Information Bureau of India Limited(CIBIL) has begun playing a crucial role in influencing loan approval processes of banks. 

Credit information bureaus such as CIBIL are formed under Credit Information Companies (Regulations) Act 2005 and are complete legal entities. These bureaus work on the principle of reciprocity. Many banks, housing finance companies, credit card companies and other financial institutions share their entire credit data in a common pool. Each of the member banks that offers its entire borrowers data has the right to access the credit information reports (CIR) prepared by CIBIL. CIR is a factual record of a borrower's credit payment history compiled from information received from different loan providers. CIR captures borrower's borrowing details under various accounts - a home loan, a personal loan and even credit cards.

It enlists all transactions with lenders - borrowing, repayments, and closures. If you have been late in paying your dues or have defaulted on any of your loans, your prospective borrower comes to know about it. Even if you have settled an account after defaulting on repayment of the loan, it gets reflected in your Credit Information Report. Slippages in the form of late payments, settlements, defaults, can pull down your credit score. In such cases, an application for home loan is rejected. This is one of the chief reasons many loan applications nowadays are rejected due to poor credit score of borrowers. Hence, it is important to check your credit report and credit score before applying for your home loan and hence keep at bay any untoward experiences.



Madan Mohan is your banker turned counsellor. Having spent more than three decades in the banking industry, Madan took up the role of Chief Counsellor at ICICI Bank promoted, Disha Financial Counselling Centre. During his five year tenure, he helped distressed customers come out debt trap and helped others from falling into one.

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