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A number of factors determine your credit value, including your credit score, past credit history, debt-to-income ratio and credit appetite; While credit score is considered a major factor for loan approval. With a low score, your chances of loan approval are also low.
Often times we come to know about the low credit score only after the loan has been rejected. Once your loan application is rejected, it becomes difficult to get it approved by another lender soon. It can take a substantial amount of time to actually improve your score and improve your loan eligibility. Thus, in the face of urgent cash requirements, you need to take some financially prudent steps to deal with loan rejections and improve your credit rating.
Some common reasons for loan rejection
Bad credit history and low score: When you fail (or delay) in paying your past loan installments 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 appears insufficient to manage the additional debt burden.
Errors in Application: Whether intentional or otherwise, erroneous details in your application will result in loan rejection.
Too many unsecured loans: When you have more unsecured loans than secured loans, your application for personal loan is bound to get rejected. In this, pledging collateral can help you get a secured personal loan. In fact a lot of borrowers opt for online secured homeowner loans (another fee) in spite of bad credit.
How to improve your loan application and avoid rejection in future?
Look beyond Main Street lenders: After loan rejection, it is important to work on your profile before applying for loans to other lenders. If your need for funds is urgent, consider applying to Private Lending Partners online. Unlike main street lenders, fintech players have less stringent eligibility criteria.
Use the Online Eligibility Calculator: You can either check your loan eligibility online using the eligibility calculator available on the websites of various loan brokers or approach a broker and ask for a referral.
Retrieve your credit report: You should also analyze your credit report. Sometimes errors in the report also lead to loan rejection. Disputing the error here can help you improve your score and get the loan approved later.
Check Your Score: When you pull your credit report, it does not create any footprint in your credit report as it only raises a soft enquiry. The better the score, the better deal you get.
Make Good History: One of the best ways to improve your score is to build a good credit history. You should ensure timely repayment of loan and credit bills. Consider using automatic repayment through a bank account for this. Most people fail to realize that even a delayed, partial or rolled over credit card bill negatively affects their score.
Don’t exhaust your credit limit: Exceeding your credit limit every month is another common mistake. To keep your score healthy, don’t use more than 30% of the credit limit every month.
Do not ask more than one loan related question: When you apply for multiple loans in a short span, it makes you credit hungry for lenders. Thus always inquire for a loan after assessing your credit requirements.
By keeping track of all these details along with proper documentation, you can surely get instant loan approval. Don’t forget that you can also use the advice of a licensed loan broker to find out the best deals available near you. You can compare and choose the most suitable loan as per your credit requirements.
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