The emotional letdown of not being approved for a new personal loan is an understandable reaction. Being rejected for a personal loan does not always mean that your options for getting a new loan are completely out of your reach. Sometimes, the reason you were not approved can be fixed quickly. It is all part of learning from your mistakes. You should spend time to understand why you are being rejected and try to rectify the issues. Once the issues are rectified, you can resubmit your loan application again. The following are five potential reasons why you may be getting rejected for the personal loan.
1. Error in Credit Report
It is common for people to report about erroneous entries in the credit report. The Federal Trade Commission claims that there is one out of every 4 consumers that report about errors in their credit reports. The most common errors are closed accounts that still remain open on the credit report and inaccurate report of late payment. This is why it is important that you review your credit report prior to applying for a loan. If you notice an entry that you believe is an error, you should file a complaint to the credit bureau.
2. Too Many Inquiries
Applying for too many loans at the same time is another reason why you get rejected for the personal loan. Every time you apply for a loan, the bank will make a hard inquiry on your credit report. The lender may see you as someone who doesn’t know how to manage your finance and is depending on these loans to supply you the money. To avoid this problem, you must first do research on your available options and only apply for the loan with a favorable lending term.
3. Poor Credit Score
The credit score has a major influence on the approval of your loan application. FICO score is the standard used by most online lenders. FICO score which features a range in between 300 – 800, is allocated based on your payment history. If you often default on your bills, your credit score will be low. The credit score helps the online lender to determine whether you are a risky borrower. If you have a poor credit score, you can get it fixed first before applying for the loan. Getting a secured card is one way to build up your credit score.
4. Have Too Many Debts
Having too much debt to handle can be a red flag to the online lender. Ideally, the debt that you are handling should be lesser than 40% of your current earnings. If you already have a lot of debt to handle, you should try to pay off some of the debt before applying. You can also use a personal loan to consolidate the existing debt so that you can pay it off faster.
5. Fail to Include an Important Document
Sometimes, the loan application is rejected because you did not include accurate information or you did not attach an important document. For example, you may forgot to include a document of an alternate income which you have stated on the application form. To prevent delay, you should always spend time to review the paperwork and double-check all the details before submitting.