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Good credit score is not enough to get a loan. Here's why

Lenders will reject your loan application if your debt obligations exceed 50% of your income.

Updated: Jul 16, 2019, 09.25 AM IST
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Avoid multiple loan applications and instead do proper research and then apply to the lender best suited to you.
By Hrushikesh Mehta

For 28-year-old Aatish, liquidity was never an issue. His new job as a software architect in a Bengaluru-based startup gave his career the necessary thrust at the right time. Originally from Delhi, Aatish had to buy furniture for his rented apartment and a new car to start his life in a new city. Funding these new purchases via loans was not a problem as he had a good credit score. Then, a sudden illness in the family forced Aatish to apply for another personal loan to help his family with the medical expenses. Given his credit score, he was sure his loan application would be approved. Timely payment of his education loan and credit card dues had helped build a strong credit history.

But his loan application was rejected. While a good credit score is a must,it doesn’t necessarily ensure that your loan application will be approved. Aatish’s debt-toincome ratio of over 50% made him unworthy of securing further credit, despite him maintaining a good credit score. Two of his three loans – education and personal loan – being unsecured didn’t help matters either.

To illustrate, let’s assume an individual has a net monthly income of Rs 50,000 and is servicing loan EMIs of Rs 15,000. After setting aside 50% of the income towards living expenses, he is left with Rs 10,000. This makes him eligible for another loan— say, a Rs 10-lakh home loan or a Rs 3-lakh personal loan—as he can service the additional EMI burden from the Rs 10,000 surplus money with him. However, if his monthly expense rises to Rs 30,000, he would not be able to secure a loan from almost any lender.

Another thing to keep in mind is to avoid approaching multiple lenders at the same time as this could be counterproductive. This is due to a phenomenon called ‘loan stacking’ that lenders guard against. Loan stacking occurs when a consumer makes multiple applications with different lenders at the same time in an attempt to get more than one loan before a lender realises that another lender has already given a loan to the applicant. Instead of applying to several lenders, one must research the best options on loan marketplaces as these help determine whether one is eligible to get a loan and may also suggest which lender to approach.

So, the points to keep in mind are: stay atop your finances, make sure that your credit score and report are healthy and ensure that your debt obligations never exceed 50% of your income. Also, avoid multiple loan applications and instead research all the options online and then apply to the lender best suited to you.

(The author is Country Manager India, Clearscore)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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