Evaluation of reasons for refusal
The loan application can be refused for several reasons. It can also happen if you ignore how your bad credit history led to loan denials. It is important to monitor the impact of your loan applications and their rejections on your credit score. Repeated rejections can further damage your credit score, and it can take months or years for you to recover.
Find out why you were rejected. Typically, lenders will provide a reason to help the borrower repair and qualify for a loan.
For example, providing a guarantor can help get a loan. Rejections can be due to a variety of reasons such as a poor credit score (under 700), insufficient income, too many pending loans, non-payment or late payment of past loans, employment history, etc. problematic employment, legal issues related to moving and mortgaged real estate to lenders, etc.
Denials can also occur due to an error in your credit report, such as your PAN being wrongly linked to someone else’s default. Knowing the reason is an important step in improving your credit standing.
Working with the reason of being rejected
Your lender can access your pending loan details and request your bank statements to gauge the percentage of your income used for the IME. They want that you spend no more than 55 to 60% of your disposable income on loans.
If your income has grown to this level, you may not be able to repay your new loans and therefore risk being turned down. Higher disposable income is preferred.
Do not continue to apply
Every time you apply for a loan or a credit card, the lender will “hard” check your credit history. Each checking company lowers your credit score slightly. Therefore, applying for a loan many times in a short time will seriously affect your credit score.
If you’ve been rejected once before, chances are you’ll be rejected again. So avoid applying for too many loans at once as this will only hurt your score and lead to more rejections. Repeated fact checks also show that you are greedy for credit, which is a red flag for the lender.
Monitor your credit score monthly
To know what’s going on with your credit history and how your score is reacting to payments, outstanding balances, or defaults, it’s essential to monitor your credit score monthly. You can get a free monthly credit report from Experian or CIBIL.
Sign up again when the score improves
Depending on the damage caused by a loan denial, improving your credit rating can take a long time. It usually takes four to 12 months. However, if you already have a good score above 750, it will take you less time to improve it further. Regular debt payments and good credit behavior will help you improve your damaged score.