Rejects of loan application can have a number of causes. Generally speaking, irregularities or late payments on debt stand out as the main causes. Rejections can also result from ignorance of the ways in which a bad credit history affects loan approvals. If you’ve recently been rejected, it’s important to recognize the reasons why and take appropriate action.
It’s critical to keep an eye on how these rejections are affecting your credit score because several rejections can lower it and make it take months or even years for it to recover.
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If your loan application has been rejected, follow these steps:
Determine the Root Cause
Find out the reason your loan application was turned down. Lenders frequently give explanations, so you can address the problem to improve your eligibility. Getting a guarantor, for example, could improve your chances. Rejections may be the consequence of a number of things, including a low credit score (less than 700), low income, debt, past loan defaults or late payments, a troublesome employment history, or legal issues pertaining to pledged assets. Rejection may also result from errors in your credit report, such as your PAN being inadvertently connected to another person’s loan default. To raise your credit score, you must comprehend the precise cause.
On-time Debt Repayment
Maintaining a good credit profile and lowering the chance of loan rejections requires timely payment of debts and EMIs. You can get the best loan offers if your credit score is higher than 750. If the reason for the rejection was a low credit score, work on raising it. Repayment of your debts in full and on time raises your credit score over time. To further prevent negative impacts on your score, keep your credit utilisation ratio (CUR) low and refrain from cancelling or applying for new credit cards.
Evaluation of Debt-to-Income Ratio
Your outstanding loans are accessible to lenders, who may also ask to see bank statements in order to assess the percentage of your income that is allocated to EMIs. Generally speaking, they prefer that borrowers not use more than 30%–40% of their disposable income for loans. This threshold may be reached or exceeded by your current obligations, which could make it difficult to get new loans and possibly lead to rejection. In these situations, having more disposable income is advantageous.
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Correctness of Documentation
Make sure that all of the necessary information—such as name, address, signature, PAN, Aadhaar, and other documents—is accurate and consistent when completing loan applications. Inconsistencies in these non-monetary factors may result in needless denials, thereby compromising your prospects of obtaining loan approval.
Limit Your Use of Frequently
The lender runs a “hard” inquiry into your credit history each time you apply for a loan or credit card. The credit score is slightly lowered by these inquiries. Thus, applying for several loans in a short amount of time can negatively impact your credit score. Rejections that occur frequently point to a pattern, which lowers the likelihood that new applications will be accepted. Try not to apply for too many loans in order to protect your credit and prevent more denials. Lenders may become concerned when multiple hard checks indicate a desire for credit.
Keep a regular eye on your credit score
It is crucial to keep an eye on your credit score each month to be aware of any changes brought on by late payments, missed payments, or loan defaults. A thorough overview of your credit activity, payment history, and loan status can be obtained by obtaining a free monthly credit report from Experian or CIBIL. With this quick overview of your financial situation, you can monitor the improvement of your score and take well-informed actions to raise it. Frequent monitoring also makes it easier to find inaccuracies or anomalies that might lower your score, enabling you to take care of them with the appropriate credit bureau.
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Reapplying as You Get Higher Points
It could take some time to rebuild your credit after being rejected for a loan. On the other hand, the time required for improvement is typically less if your score is already high. Rebuilding a damaged credit score is possible with consistent debt payments and responsible credit behavior.
Hope these tips will help you make your case stronger and expedite your loan approval process.
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