In a recent conversation with Prasad Sanyal, Group Business Head of TOI, Paisabazaar CEO Santosh Agarwal shared crucial insights on loan approvals. She emphasized that a credit score is not the sole determinant for loan approval and warned against what she termed 'hungry credit behaviour'.
Understanding 'Hungry Credit Behaviour'
Agarwal explained that 'hungry credit behaviour' refers to a pattern where an individual applies for multiple loans or credit cards in a short span, often due to urgent financial needs. This behaviour raises red flags for banks, as it indicates potential financial distress. Even if the applicant has a high credit score, such behaviour can lead to rejection.
The 'Not To Do' Checklist
- Do not apply for multiple loans simultaneously: Each application triggers a hard inquiry, which can lower your credit score and signal desperation.
- Avoid maxing out credit cards: High credit utilization ratio (above 30%) suggests over-reliance on credit.
- Do not ignore existing debts: Lenders assess your debt-to-income ratio; high existing debt reduces eligibility.
- Refrain from frequent credit limit increases: This can be seen as a sign of financial instability.
Other Factors Influencing Loan Approval
Agarwal highlighted that banks also consider employment stability, income level, repayment history, and overall financial behaviour. A sudden spike in credit inquiries or new accounts can be detrimental.
Tips for a Healthy Credit Profile
- Maintain a credit utilization below 30%.
- Pay all bills and EMIs on time.
- Limit hard inquiries to one or two per year.
- Keep old credit accounts open to build history.
In conclusion, Agarwal advised borrowers to be strategic and patient. Avoid impulsive credit decisions to ensure a smooth loan approval process. Understanding these nuances can save applicants from unnecessary rejections.
