Loans: Tips for getting your loan application approved


Avoid applying for too many loans at once, as this will only hurt your score and lead to more rejections

The rejection of a loan APPLICATION can occur for several reasons. Inconsistency and delay in paying your debts is the typical reason. It can also happen if you don’t know how your bad credit history leads to loan denials. If you have been rejected recently, it is important to assess the reasons and work on it. It’s also important to track the impact of your loan applications and their rejection on your credit score. Multiple rejections can further damage your credit score, and it may take you months or years to recover. Here are some things you can do if your loan application was recently rejected.

Assess reason for rejection
Find out why you were rejected. Typically, a lender will provide the reason to help the borrower correct their course and become eligible for the loan. For example, providing a guarantor can help secure the loan. Denials can be caused by a wide variety of reasons such as a bad credit score (under 700), insufficient income, too many outstanding loans, non-payment or late payment of previous loans, past problematic professionals, legal issues related to movable and immovable property to be mortgaged to the lender, etc. Rejection can also occur due to errors in your credit file, for example, your PAN is wrongly linked to someone else’s default. Knowing the reason is an important step in improving your credit health.

Work on the reason for the refusal
Timely payment of your EMIs and other debts is essential for good credit health, which reduces the number of loan rejections. A good credit score, above 750, leads to the best loan offers. If a low credit score led to a loan rejection, work to improve it. Repaying your dues in full and on time will begin to increase your score again. Keep your credit usage low and don’t close your existing credit cards or apply for new ones to avoid a negative impact on your score. Your lenders can access your pending loan details and require your bank statements to assess the percentage of your income used for EMIs. They prefer that you spend no more than 55-60% of your disposable income on loans. If your income is already tapped to this level, you may not be able to repay new loans and therefore risk being rejected. Higher disposable income is better. Also, keep your name, address, signature, PAN, Aadhaar and other documents to loan in place so that rejection is not for any non-financial reason such as name or address incompatibility.

Do not continue to apply
Every time you apply for a loan or a credit card, the lender does a “rigorous” check of your credit history. Each firm check lowers your credit score slightly. Therefore, multiple loan applications in a short period of time will seriously hurt your credit score. If you have already been rejected once, chances are you will be rejected again. So avoid applying for too many loans at once, as this will only hurt your score and lead to more rejections. Successive rigorous checks also show that you are hungry for credit, which is a red flag for the lender.

Track credit score every month
To know what is happening to your credit history and how your score reacts to your payments, late payments or defaults, it is essential to track your credit score each month. You can get a free monthly credit report from Experian or CIBIL. The report summarizes your credit activity, repayment history, and loan status. It’s a snapshot of your financial health. Knowing where your credit score stands can help you make decisions to improve it. Monthly monitoring also helps spot discrepancies and errors that can also hurt your score. You can report these errors to the appropriate credit bureau.

Reapply as score improves
Given the damage caused by loan denials, improving your credit score can take time. It usually takes four to 12 months. However, if you already have a good score above 750, it takes less time to improve it further. Your consistency in paying debts and good credit behavior help you improve a damaged score.

The author is CEO,

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