Does Loan Rejection Affect CIBIL Score?

When you apply for a loan, a lot more than just money is on the line. Your plans to buy a new car, own a home, fund a wedding, or manage an important expense often depend on timely approval. However, when a loan application is rejected, it can be disappointing and stressful. What many borrowers do not realise is that repeated rejections can also impact your CIBIL Score, making future borrowing harder.

This is why checking your loan eligibility before applying is crucial. Eligibility checks help you understand whether you meet a lender’s income, credit score, age, and employment criteria. By applying only when you are eligible, you reduce the chances of rejection, protect your CIBIL Score from unnecessary credit enquiries, and improve your chances of faster approval and better loan terms.

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• Low CIBIL Score: A low CIBIL Score is a common culprit for loan rejection. Your CIBIL Score is like a report card that tells lenders how good you are at managing your finances. If it is low, it suggests that you might have had difficulties repaying loans in the past. Lenders want to reduce the risk of not getting their money back, so they might turn you down.
• High debt-to-income ratio: Imagine if you earn a small allowance but have borrowed a lot from your friends. That is a high debt-to-income ratio, and it is not a good thing when you are applying for a loan. Lenders want to see that your income can comfortably cover your debts. If it does not, they might say no to your loan application.
• Inaccurate information: Sometimes, people make mistakes when filling out their loan applications. It could be a typo or may have provided incorrect details. Lenders need accurate information to make decisions. If they discover inaccuracies, they may reject your application, and this can negatively impact your CIBIL Score.

Each time you apply for credit, it triggers a hard inquiry into your credit report, which temporarily lowers your score and remains on your report for a period of two years. While the outcome of your application (approval/ rejection) is not recorded and has no direct bearing on your credit score, your credit report does have a list of recent loan enquiries along with details pertaining to your debts and repayment history. So, it is advisable not to apply for another credit product right after a recent loan rejection. Doing so will make you appear credit-hungry and hurt your score.

If your recent application for credit was declined, here are the steps you can take to safeguard your credit score:

Step 1 – Understand why you were rejected: The first thing that you should do is figure out why your loan was rejected. Was it because of your low CIBIL Score? Or maybe your debt-to-income ratio was too high? Knowing the reason is crucial because it will guide your next steps.

Step 2 – Improve your credit score before applying again: Boosting your credit score post-rejection involves fixing the issues that led to the rejection. To improve it, you need discipline and patience. Pay your bills on time, every time. Avoid taking on too much debt and maxing out your credit cards. Regularly check your credit report for errors and have them corrected. Remember to space out your applications to avoid too many hard enquiries within a short duration.
 

A loan rejection does not have to be the end of the road. If you find rebuilding your creditworthiness challenging, consider the Bajaj Finserv Credit Pulse Report for personalised assistance. With the Bajaj Finserv Credit Pulse Report, you can track and analyse your credit health easily, with monthly CIBIL Score checks, real-time credit health insights, credit factors tracking, and interactive tools for smarter decision-making.