How to Get Your Loan Application Rejected in 15 "Easy" Steps
There are whispers on the street that bank credit officers consume nothing but cute kittens for breakfast. But fret not, our experts have proven that to be a mere myth.
You see, the banks' loan officers are not big bad wolves that rip your loan application into a million tiny pieces (they delegate that task to the paper shredder instead). If you're looking for something to blame for your loan application rejection, look no further than your credit report created by the bank.
Uh-oh, here comes the crunch: Different banks have their own policies and internal method of measuring your credit score when it comes to loan approvals, but your own melange of poor banking habits and credit history could be your own avada-kedavra; that's the death spell, in case you don't know.
But let's not worry ourselves silly, MoneySavers! If you haven't committed any of these missteps, then you are in the clear! So how do you get loan application denied? Easy-peasy, just follow these no-no's ahead.
But first, what is a credit report?
A credit report is a menu that serves up your past financial information; in Malaysia, the two main authorities that collect your financial footprints are Credit Bureau (under Bank Negara Malaysia) and CTOS (a private entity), among others. These pesky reports are often used as by banks as references towards loan applicants that have come their way.
• Outstanding credit facilities - current loans and other debts like credit cards
• Applications for credit facilities - all applications approved in the previous 12 months (minus those that have been rejected, deleted or cancelled)
• Special attention accounts - Accounts with several late payments or any outstanding accounts that are under close supervision by financial institutions.
The five sections in CTOS:
• Identity verification - Full name and company or business registration number. This section helps to prevent fraud and identity theft.
• Internal list / group exposure - A company's own information and reference regarding on a customer. No one has access to this section aside from their own internal personnel.
• Directorships and business interests - A record of directorship and shareholdings; banks use this section to help verify applicant's actual income.
• Legal Actions - Bankruptcy information, legal actions, and case statuses.
• Trade Referees - Companies that may want to share their business experience; for example, telcos and utility companies might referenced you if you have multiple unpaid bills and so forth.
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15 "Easy" Steps to Get your Loan Denied
1. Pay your bills later than the due date! In fact, do this multiple times! A 60-day late payment is good, but a 90-day late payment is better; the banks will probably say no faster than you can say "please".
2. Apply for more than you can reasonably pay off.
3. Ensure your debt-to-income ratio (the amount of your monthly debt owing compared to your monthly income) is way high. To make it even better, make your monthly debt totals more than your monthly income; that will surely get the bank personnel to vigorously shake their heads.
4. Have zero collateral. No cars? No house? No expensive shoes? Sorry ladies and gents, no loan for you.
5. No credit history. This doesn't necessarily mean you'll get denied for your loan request, but it might be harder for you to prove you can pay off a loan with no problems if you have no history to evidence it.
6. Have you been a terrible customer to that particular bank? Good, that will surely sway them to the "no loan" direction!
7. Keep your account in overdraft constantly without going back.
8. Make sure all of your credit cards are used up to the maximum level.
9. Don't bother saving any money. Even if evidence shows that you have been using your savings to pay down debt, the bank might still cast a doubt on you.
10.Have no permanent address. Also, change jobs 20 times in a year. Most banks hate inconsistency.
11. If you're self-employed, make sure to claim as little income as possible - which some people do to evade taxes. Ergo, that income will be insufficient for the credit you're seeking. Denial confirmed!
12. Show proof of fluctuating (sometimes negative) monthly income. It's a cruel world out there, but it is harder for a self-employed or a part-time worker to get loan approvals. So flaunt that fluctuating income and make it clear that you have no idea how much you'll be paid next month!
13. Have a bankruptcy under your belt. After filing for bankruptcy, there's a certain amount of time and the matter of paying it all back, before you can seek other credit.
14. Constantly miss payments on your credit card with high balances.
15. Have your home foreclosed, or your car repossessed.
So how do you get your loan approved? By doing the exact opposite of the above! On another note, one tiny financial mistake does not mean that the bank will issue a code-red against you. Now that we know what NOT to do when it comes to managing our finances, let's aim for that perfect credit score for each bank!