Is Loan Rejection Hurting Your Credit Score?

It hurts when your loan application is rejected. However, it hurts your credit score more than it hurts you. Getting rejected for a loan is bad for the score, not just for the short term, but for the long term as well. Getting rejected once increases your chances of getting rejected by other lenders as well. Yes, these things do get recorded in your credit report, and thus damage the score.

If your credit score is low, it can be due to a wide variety of factors. It can be due to debt settlements, on-payment of debts, not paying debt installments on time, high credit utilization, and much more. Thus, there can be many reasons for a low credit score.

The good news is that there are just as some ways to improve or increase it. But you won’t go into those points in this article. Here we shall detail out the impact of a rejected loan application on your credit score.

What is the credit score?

Your credit score is a 3-digit number that measures your credit worthiness, or how likely you are to repay loans. If the score goes down due to whatever reason, other lenders will see you are a risky candidate to give loans to.
Impact of a loan rejection on your credit score

Lenders make a credit inquiry each time you apply for a loan. This is known as a hard inquiry, which alone lowers your score if just a little bit. This is why experts warn not to apply at too many places at once for credit, as it only increases the risk of multiple rejections.

Thus, be careful before applying for credit. If there is a rejection, ask the bank or lender why it was so. Ensure that you don’t make the mistake again while applying next time.
Reasons why your loan may have been rejected

There can be many reasons behind a loan rejection. To know the reason behind a loan rejection, and what is affecting the score, check your credit report. Here are the common reasons behind a low credit score.

• Taking multiple loans: Do you have more than one loan account? If so, banks are more likely to refuse you loans and even credit cards. This is because they see you as one with an unstable personal finance since you are always in need of loans.
• Loans defaulted: Too many of these, regardless of whether it was solely your account or whether it was a joint-loan account, you will be penalized by loan denial later on. Banks don’t want to give loans to one who has defaulted on loans.
• Credit score remarks: Loan defaults are not the only problem which can lower your credit score. Did you make a debt settlement with a bank? If so, then your credit report now contains the remark “settled.” This makes it hard to get loans later. However, you can still get credit if you give security. Lenders are more likely to reject unsecured loan applications at this point.
• Employment status: Incidents of late salary credits and when the employer is not well-known to the bank can give rise to loan rejections.

6 things to do to raise your credit score?

Here are a few things you can do to get back on track. It’ll take time, but you’ll get there.

• Pay off all debts
• Have a low credit utilization ratio, below 30%
• Pay overdue bills
• Do not take multiple loans
• Get a loan tenure which suits you
• Get mixed loans

5 Ways To Get A Loan Despite Having A Low Credit Score

 Think of it from a different perspective of the lender. He is actually taking a risk by lending money to anyone at interest. After all, the borrower may not give back the money due to various reasons. This is why lenders, whether they are banks or individual lenders, give money after scrutinizing your credit worthiness. Understand, giving personal loans is risky.

They do this by seeing your credit score. A low credit score can indicate that you are not very credit-worthy, while a high score indicates otherwise. If you have a high credit score, banks will line up to give you loans.

Now, you may have heard that you can’t get loans with a bad credit score. However, it is not completely true. Here are ways to get a loan despite having a low credit score.

    Prove that your income can support EMI payments: Lenders are mainly interested in getting their money back on time. So if you have a stable monthly income which can support the monthly EMIs, they may not mind you having a low credit score. Yes, maybe you’ll get it at a high interest rate, but at least you’ll get the money.

    As for a lower amount: A lower amount mitigates the risk of the lender, even if slightly. So if banks are not ready to give you a large amount, ask for a small amount. They shall be more than likely to give you that. Giving a smaller amount makes banks more comfortable in dealing with you since smaller amounts are easier to repay.

    Apply along with a co-applicant or guarantor: So here’s the thing with co-applicants and guarantors. Their creditworthiness is more than yours, and if they co-apply or guarantee loan repayment, banks will be more willing to give the money. Since guarantors and co-applicants greatly increase the chances of repayment, you are more likely to get the loan.


    Correct mistakes in credit report: Your credit report can contain errors, and it is your responsibility to see that there are no errors. Understand, credit bureaus handle hundreds and thousands of credit reports a year, and this there can be errors easily. It is up to you to check. If you do find mistakes, report it to the credit bureau and they’ll take care of it.

    Ask the lender to consider your application with NA or NH in the credit report: This means that there has been an absence of credit in the last 3 years. If so, you may not have a credit score at all. In such cases, talk to your lender about this credit inactivity, and if you can get a loan. The interest rate shall be slightly higher.

These are measures which can help give you a personal loan despite having a poor credit score. It is important to have funds enough to repay them, otherwise your score shall go even further down.