A lot 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 as a major factor for approval of loan. With low score, your chances for loan approval are also low.
Often times we get to know about low credit score only after loan rejection. Once your loan application is rejected it becomes difficult to get it approved by another lender soon. In fact it can take enough time to improve your score and improve your loan eligibility. Thus, in face of urgent cash requirements, you need to take some financially prudent steps to deal with loan rejection and improve your credit rating.
Some of the common reasons for loan rejection
Bad credit history and low score: When you fail (or delay) to pay your past loan instalments or credit bills, the lender assumes that you are incapable of repaying the loan on time.
Low monthly income: When you have high debt to income ratio, your monthly income appears insufficient to manage the additional debt burden.
Errors in application: Whether intentional or otherwise, flawed details in your application would result in loan rejection.
Too many unsecured loans: When you have more unsecured loans as compared to secured loans, your application for personal loan is bound to be rejected. Herein pledging collateral can help you get a secured personal loan. In fact a lot of borrowers even opt for online secured homeowner loans (second charge) despite bad credit.
How to improve your loan application and avoid future rejection?
Look beyond main street lenders: Post loan rejection, it is important to work on your profile before applying for loan to other lenders. If your requirement for funds is an urgent one, consider applying to private loan partners online. Unlike main street lenders, the FinTech players have less stringent eligibility criterion.
Use online eligibility calculators: You can either check your loan eligibility online using eligibility calculators available on various loan brokers’ websites or contact a broker and ask for referrals.
Pull out your credit report: You must also analyse your credit report. Sometimes errors in report also lead to loan rejection. Herein disputing the error can help you improve your score and get the loan approved later on.
Check your score: When you pull out your credit report, it doesn’t make any footprint in your credit report as it raises only a soft query. The better is the score, the better deal you would get.
Build good history: One of the best ways to improve your score is building good credit history. You must ensure timely repayment of loans and credit bills. Consider using automated repayments via a bank account for this. Most people fail to realise that delayed, partial or rolled over credit card bill also negatively affects their score.
Do not exhaust your credit limit: Crossing your credit limit every month is another common mistake. To keep your score healthy, do not use over 30% of the credit limit each month.
Do not make multiple loan queries: When you apply for multiple loans in a short period, it makes you look credit hungry to lenders. Thus always enquire for loans after assessing your credit needs.
Keeping track of all these details along with proper documentation, you can certainly get instant loan approval. Not to forget you can also use a licensed loan broker’s advice to locate the best deals available near you. You can compare and choose the best fit loan according to your credit needs.