A host of factors including your credit score, past credit history, debt-to-income ratio, and credit appetite determine your credit worth; while credit score is considered an important factor for loan approval. With a low score, your chances of loan approval are also low.
Many times we find out about a low credit score only after the loan is rejected. Once your loan application is rejected, it becomes difficult to get approved anytime soon by another lender. In fact, it may take a long time to improve your score and improve your eligibility for the loan. So, faced with urgent cash requirements, you should take some financially prudent steps to deal with loan rejection and improve your credit rating.
Some of the common reasons for the rejection of a loan
Bad credit history and low score: When you default (or are late) on your old loan payments or credit bills, the lender assumes that you are unable to repay the loan on time.
Low monthly income: When you have a high debt-to-income ratio, your monthly income seems insufficient to handle the additional debt load.
Bugs in the app: Whether intentional or not, faulty details on your application would result in your loan being denied.
Too many unsecured loans: When you have more unsecured loans compared to secured loans, your personal loan application is bound to be rejected. In this document, pledging collateral can help you get a secured personal loan. In fact, many borrowers even opt for secured online home loans (second charge) despite poor credit.
How to improve your loan application and avoid future rejections?
Look beyond high street lenders: After loan rejection, it is important to work on your profile before applying for a loan from other lenders. If your funding requirement is urgent, consider applying to private lending partners online. Unlike major street lenders, FinTech players have less stringent eligibility criteria.
Use online eligibility calculators: You can check your loan eligibility online using the eligibility calculators available on the websites of various loan brokers, or contact a broker and ask for a reference.
Pull your credit report: You should also review your credit report. Sometimes errors on the report also lead to loan rejection. In this document, disputing the error can help you improve your score and get approved for the loan later.
Check your score: When you pull your credit report, it doesn’t leave any traces on your credit report, as it only generates a soft inquiry. The better the score, the better deal you will get.
Build a good story: One of the best ways to improve your score is to build a good credit history. You must ensure timely payment of loans and credit bills. Consider using automatic payments through a bank account for this. Most people don’t realize that a late, partial, or transferred credit card bill also negatively affects your score.
Do not exhaust your credit limit: Crossing your credit limit every month is another common mistake. To keep your score healthy, don’t use more than 30% of your credit limit each month.
Do not make multiple loan inquiries: When you apply for multiple loans in a short period, lenders make you look like you’re credit-starved. Therefore, always apply for loans after evaluating your credit needs.
By keeping track of all these details along with the proper documentation, you can certainly get instant loan approval. Don’t forget, you can also use the advice of a licensed loan broker to locate the best deals available near you. You can compare and choose the loan that best suits your credit needs.