Loan application rejection can stem from several factors. Generally, discrepancies or delays in loan payments emerge as the primary reasons.
Additionally, a lack of awareness about how a negative credit history affects loan approval can lead to rejection.
If you have recently faced such rejection, then it is very important to understand the reasons behind it and take appropriate action.
It is important to monitor the impact of these rejections on your credit score. Because repeated rejections can spoil your credit score and its recovery may take several months or years.
If your loan application has been rejected, then try to adopt the following methods which can help you get over this issue.
Find out why your loan application was rejected. Lending banks or financial institutions often provide reasons, which you can use to fill in the gaps in your application to increase eligibility.
For example, getting a guarantor can improve your chances. Loan application rejection can be due to various factors like credit score below 700, insufficient income, existing loan, delayed or non-repayment of earlier loan, and problematic job history.
Errors in your credit report, such as your PAN being mistakenly linked to someone else's defaulted loan, can also be responsible for rejection.
Understanding the specific cause is important to improving your credit situation.
Ensure accuracy and consistency in essential details like name, address, signature, PAN, Aadhaar, and documents required for loan application.
Mismatch in these non-financial aspects can lead to unnecessary rejections, thereby reducing the chances of loan approval.
To maintain a healthy credit profile, it is important to repay the loan installment or EMI on time. By doing this the chances of the loan application being rejected reduces.
A credit score above 750 opens the door to the best loan offers. If a low credit score causes rejection, focus on improving it. Prompt and complete loan repayment gradually increases your credit score.
Also, maintain a low credit utilization ratio (CUR) and avoid closing existing credit cards or applying for new ones to prevent adverse effects on your score.
When you repeatedly apply for a loan or credit card, the lending bank or financial institution does a hard check of your credit history.
Frequent inquiries reduce your credit score marginally. In such a situation, multiple loan applications in a short period can cause a lot of damage to your credit score.
Repeated rejections often indicate a pattern, making subsequent applications less likely to be successful.
To protect your score and avoid further rejections, avoid making multiple loan applications.
Additionally, many hard checks indicate an eagerness for credit, which may raise concerns for the lender.
It is important to monitor your credit score every month to stay updated about changes due to loan default or delay in repayment. You can get a credit report every month from Experian or CIBIL.
It provides a comprehensive overview of credit activity, payment history and loan status. This snapshot of your financial health allows you to track the progress of your score and make informed decisions to increase it.
Regular monitoring also helps detect anomalies or errors that may be damaging your score, allowing you to address these issues with the relevant credit bureau.
It may take time to recover from the impact of loan application rejection and restore your credit score.
However, if your score is already good, it usually takes less time to improve.
Timely loan repayment and cautious credit behaviour contribute to enhancing a damaged score.