Why Banks won’t lend to applicants with Credit Score of -1

A Credit Score as we all know indicates the financial health of an individual or company. This score is based on the user’s historical financial performance. It includes the user behavior on all the loans and credit cards availed and served.

In the current economic scenario Banks and Financial Institutions face the challenge of rising NPA’s (Non Performing Assets or defaults). This has resulted in more stringent lending norms and checks to safeguard the Bank’s interests. Besides KYC (Know Your Customer), the next check is that of CIBIL CIR (Credit Information Report). Banks generally reject applicants who have a score less than 750.

There is another category of applicants who get a score of -1. A score of -1 also indicates that the applicant has no credit history. No credit history basically means that the applicant has not availed any credit card or loan in the past. Lending to this group of applicants raises the following two concerns:

One cannot judge the applicant’s intention to pay as they don’t have a proven track record.

With Banks and financial institutions selling their credit cards and loans so aggressively it’s tough to believe that a person with a basic Job stability of one year will not have a credit card or consumer durable loan.

So when a Bank gets applications with 5 or 10 years of work experience and a CIBIL score of -1, they generally don’t give them the benefit of doubt. The chances are high that the application has been submitted with a different PAN number. The applicant may have defaulted in the past and got a new PAN card made to avoid detection. By rejecting such cases there is always the possibility of even weeding out a good customer. But this is an acceptable loss as the price of booking a defaulter is much higher.

In theory the Credit Report system looks great but in reality its effectiveness is easily diminished. The PAN card is one of the most important documents in this system. But it’s easy for anybody to get multiple PAN cards and defeat the whole purpose of Credit Report.

So from customer point of view to get hassle free credit when required , it’s always good to keep few credit cards or consumer durable loans and be regular in their repayments .

This way they will be good customers for banks and will always have some offers from them of secured or unsecured funding, which they can use as and when required, as Banks are always more comfortable to fund tried and tested customer at lower rate of interest than new customer at higher rate of interest inspite of the fact that the latter bring more revenue to them.

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