Customers lacking credit scores suffer as lenders put safety first

Never taken a loan before? It may be harder to get one, should you apply.

- Shayan Ghosh

While 29% of so-called new-to-credit applicants received loans in the June quarter of 2022 and 2021, only 23% did so in 2023, TransUnion Cibil data showed.

When someone applies for a loan or a credit card, the lender checks the person’s credit score with the credit bureau. The TransUnion Cibil data pertains to loan accounts opened within 90 days of enquiry for loans for homes, commercial vehicles, construction equipment and education and within 30 days of enquiry for all other loans.

Lenders are tightening risk frameworks and chasing prime customers, with those lacking credit scores falling behind as banks have no way to assess their repayment capacity.

Although customers with existing credit records also saw a decline in approval in the June quarter, the change was narrower than seen in the new-to-credit category.

To be sure, approval rates of most loan categories—home loan, loan against property, auto loan, personal loan, among others—in June fell from a year ago.

Experts said this could be a result of banks turning cautious on such borrowers, especially after small-ticket personal loans have started exhibiting increased delinquencies.