Having a personal loan application rejected might have baffled you, with no knowledge of what to do next. Various factors could have been responsible for the lender to reject your loan application. If you reapply, without rectifying the situation, you are most likely to get rejected again. The wise step to take would be to look at various aspects of your financial profile, check for red flags in your credit and resolve them.

Here are some things you can do when your personal loan gets rejected.

1. Confirm the reason for loan rejection 

This should be your first step. Most lenders gladly will provide you with the reason why you were rejected, but if they do not, it’s worth contacting them. The most common reasons for being denied a personal loan are insufficient monthly income, poor or no credit history, and high debt-to-income ratio.

2. Fix whatever you can

Now that you know the reason behind your personal loan rejection fix whatever you can. Examine your credit report. This report contains your credit information, including your current debts and the credit accounts you have taken in the past and their corresponding repayment history. Scrutinize the credit report to understand why your loan was rejected. Was there a late payment? Or you might have inaccurate information in your credit report, which is affecting your credit score. Errors in the credit report can be easily fixed; just raise a dispute with the credit bureau. 

3. Improve your credit score
Your credit score is one of the most critical factors that influence the likelihood of you getting a loan. If the reason behind your loan rejection is a poor credit score, take steps to improve it. Here’s how:

• Clear off old credit accounts
• Pay bills on time
• Keep your credit utilization ratio low
• Don’t make too many loan enquiries

4. Regularly monitor your credit score
While you are taking the above steps to improve your credit score, it’s essential that you monitor the progress. Get your annual free copy of credit report from the major credit bureaus such as CIBIL, Experian, Equifax, and Highmark.

In Conclusion

There’s no need to panic if your personal loan application gets rejected. You can easily recover from this situation and improve your creditworthiness by taking the steps mentioned above. Once you have improved your financial profile, you are ready to apply for the loan again. Some things, like clearing up a negative item in your credit report, doesn’t take time. But something such as building your credit score will require time and patience. But these approaches will make you a better loan candidate, thus improving your chances of getting a loan in the future.

Author Bio:

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life's mission to help and educate people on various financial topics, so email him your questions at shiv@moneytap.com.