The credit score is perhaps the most important parameter that influences your loan approval or rejection. The credit score is a figure between the range of 300 and 900, and essentially signifies an individual’s creditworthiness. Higher the score, better the approval chances. As times have evolved, the number of lenders operating in the market has seen a steep rise, with many lenders like Fintechs offering immediate personal loans to salaried and self-employed individuals. The turnaround times for these immediate personal loans is about 24-48 hours, as lenders offering these types of loans have adopted a starkly advanced loan application process and processing systems.
In this article, we look at some common mistakes that can negatively impact an applicant’s credit score. Note that in most cases where lenders provide same day personal loans to individuals, they do so to those with good credit sores. Avoiding these mistakes can help applicants maintain a good score and improve approval chances on various types of secured or unsecured loans.
Late payments impact credit scores quite a bit. Multiple instances of EMI bounces or late payments can definitely have individual impacts on approval chances – meaning, your application can get rejected even if you have a good credit score in case you have too many late payments or EMI bounces. So, if you want to maintain good credit health, make sure you do not have multiple instances of late payments or EMI bounces.
Applying with too many lenders at once
Applying for loans with too many lenders at once can also cause damage. Applying with too many lenders reflects credit hungry behavior, as every inquiry leaves a mark on your credit profile. Applicants exhibiting credit-hungry behaviors are often rejected or offered loans at a much higher rate of interest.
Applying with DSAs
DSAs sometimes send your application to multiple lenders, creating a reaction in accordance with point number 2. It is thus, advised to go with single lenders and not pick DSAs to shield your score from being negatively impacted.
Defaulting on your loan
Defaults severely impact credit scores – more than any other parameter. As personal loans are unsecured loans, lenders use credit scores and repayment histories to determine the creditworthiness of applicants. Note that a single instance of default can bring down your score by over 30 points.
Having an extremely high monthly income to debt ratio
This is another parameter that can negatively impact your credit score. Make sure your monthly debt liabilities do not exceed 30% of your monthly income to maintain a healthy monthly income to debt ratio. Applications where the ration is over 50% will lead to rejections from lenders as it reflects a higher incidence of risk.