Personal Loan Rejected Despite a Good Credit Score? Why

You have a good credit score, you repay all of your bills on time, and then your personal loan application still gets rejected, so what went wrong here? 

A good credit score isn’t enough to get a personal loan, credit score helps, but it’s not the only factor that lenders consider, they consider all the possibilities and your ability to pay back the loan and a lot of other eligibility criteria before lending you the money. 

A credit score is the score that reflects your credit history, how you have handled your credit in the past, it helps them to assess your behavior on credit, they get an idea about your credit behavior and how you are going to handle the loan repayment.

What is a personal loan? 

Personal loans are usually unsecured loans, meaning they don’t require you to provide collateral or a particular asset. The lender gives a lump sum, which means that they hand money all together to you. And then you repay it back through a scheduled EMI over a chosen time period. There are some interests and applicable charges applied to the borrowed money; you need to repay the overall borrowing cost. Other eligibility and loan terms depend on the lender and the borrower’s profile. There are money factors that a lender considers, such as income, employment stability, any financial obligation or due debt, and how much EMI, they will check your overall financial profile.

What do lenders look at beyond your credit score? 

• Your income and repayment ability: A good credit score doesn’t really mean that your current income is enough to comfortably repay the loan that you are requesting for. They have to assess your income, against the loan amount and the due date of repayment, to check how will you pay back this estimated amount.
•  Your existing EMIs and debt: They need to check your existing EMI and debt, you may have good score but if you have existing EMI or any other financial obligations going on, this can affect the repayment.
• Your employment or income stability: They have to check your employment and your current salary stability, the eligibility criteria may differ from lender to lender.
• Your recent credit applications: Applying on multiple application within a short span of time straight away will lead to multiple enquiries on your report.
• The lender’s own eligibility criteria: Every lender carries a different requirement. So fulfilling the criteria of one lender doesn’t mean you will meet another’s criteria.

What should you do after a rejection?

1. Check if the lender provided a reason: You need to check whether the lender has shared a reason for your rejection or not, read that carefully that what lead to your rejection, It will help you to understand that what part have affected the decision for rejection of your loan.

2. Check your credit report: Check your credit card history report and look if there is any incorrect or outdated information, if there is any account that you don’t recognise or payment that has been reported incorrectly.

3. Look at your existing financial commitments: You need to check your current EMIs, credit card balance or any other financial commitments that you need to do, this will help you to understand whether another loan would fit right into your current finances, and how well you can repay loan in the due date.
 

4. Don’t immediately apply everywhere: Instead of sending your applications quickly to get a loan to lenders straight away, first go through why the previous application got rejected. Multiple credit applications all together can result in more additional enquiries for you. 

5. Check the lender’s eligibility criteria: If you want to apply again to a lender, please first check the lender’s requirements first rather than just assuming that having a good credit score will directly help you.

Must Read – Emergency Loans for Bad Credit: Options, Eligibility & What to Know

FAQ

Final Takeaway

A good credit score can strengthen your loan application, but it will not guarantee that you will be approved for getting a loan. If your personal loan is still getting rejected even after having a good credit score, you need to look at other things beyond the credit score.