Do You Have an Excellent Credit Score But Refused a Business Loan?

Updated on: 03 Jan 2024 // 3 min read // #mmm news
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So, you have tried hard to improve your credit score, as you are geared up to avail of a Business Loan to expand your business, but even after achieving an excellent credit score your loan application gets rejected. Yes, that is possible!

If you think that having a good credit score is enough to get approved for a Business Loan, you are not alone, many applicants feel the same. Although, a good credit score is one of the important factors that lenders take into consideration when extending loans, there are various other parameters too.

Do you have an excellent credit score, but your Business Loan request has been rejected by the lenders? Here are some possible reasons for your loan rejection:

1. If You’re Considered a “Gamer” by Lenders

Many Credit Card users frequently switch from one card to the other to avail lucrative benefits offered by the card providers. Many of these cards require customers to reach a certain spending limit during the initial few months. In the Credit Card industry, such hopper customers are called “gamers”, as they cost big money to the Credit Card companies. So, to discourage such customers, they block gamers and also refuse to lend them money. If you’re a gamer too, your Credit Card or Business Loan could be rejected even if you have an excellent credit score.

Remedy: Avoid buying multiple Credit Cards frequently, never exhaust the entire limit, and make sure you repay all your Credit Card debt timely. Defaulting or missing your repayment can reflect badly on your credit record.

2. If the Lender is Considering a Different Credit Score

The lender might be considering a different credit score! There are multiple credit bureaus in India viz. CIBIL, High Mark Credit Information Services, Experian, and Equifax. Different credit bureaus may have different credit scores of the same borrower. Also, many banks build custom credit scores of their own. So, there are chances that the lender is considering a different credit score when analyzing your loan application, and if it doesn’t match their criteria, they might refuse you a loan.

Remedy: Make timely repayment on all financial products including your card spends.

3. Lacking Sufficient Income

You might be earning a good salary in the past few years, but have suddenly lost your job due to some reasons. Or you might be a business person with a good credit score, but not filing an ITR. Your credit score cannot specify how much income you earn, it just reflects your payment history, Credit Card debt, and loan history. In that case, even if your credit score is 750 or above, and your income is insufficient as per the lender’s requirement, you could be denied a loan.

Remedy: Before applying for a Business Loan, it is advised to know the eligible income criteria of the lender. Also, apply for a loan amount that can be repaid in monthly instalments conveniently.

4. Insufficient Credit History

You might have built a remarkable Credit Score in just six months, however, some lenders require you to have a longer credit track record. Borrowers with a short repayment history are considered to have “thin files” might be refused loans by some banks.

Remedy: If you have a short credit history, identify lenders who accept such loan applications, or build a repayment record for at least two years and have at least two active accounts prior to applying for a business loan. You can also purchase a Business Credit Card and maintain its repayment to build a strong credit record.

5. If You Have Filed Bankruptcy Anytime in the Past

Have you ever filed for bankruptcy in the past? Even if your score has recovered now on the basis of your current repayment behavior, the bankruptcy will reflect on your credit report for many years. If this is the case, some lenders might reject your Business Loan application, regardless of your present score.

Remedy: Look for various financing options available and apply with the lender who accepts such applications.

Lack of research may keep you ignorant about the complete paraphernalia of applying for a Business Loan. Get informed before you apply and keep the above-mentioned considerations in mind to make sure your loan application doesn’t get rejected again in the future.