How to Handle Loan Rejection Along with a Bad Credit Score

Although you may feel discouraged when your personal loan application is rejected, it’s important to know why it happened. After knowing the root cause, you can employ strategies to improve the chances of having it approved in the future. It is normal to feel disheartened if your loan application gets declined. However, that shouldn’t define you as a person.

Each lender has criteria when approving loans; sometimes, even the most financially responsible individuals might not meet these requirements. This does not imply you aren’t financially responsible. You just need to tweak some financial aspects to match the eligibility requirements.

Loan rejection is never a pleasant thing, but it shouldn’t don’t have to be your last chance. There are several measures to put into place to help you handle the loan rejection amicably.

  1. Understand Why Your Loan Was Rejected

Before that, you should ask yourself if the personal loan was rejected due to a bad credit score. If you know this, you should check your score regularly. This will give you a better idea of whether lenders will likely approve your application.

Checking your score regularly can be of benefit. Here are some reasons to check your credit score:

  • You can determine the likelihood of loan approval.
  • Identify and correct any inaccuracies in your credit report.
  • It helps you know the interest rate to expect based.
  • It helps detect identity theft.
  • Avoid unnecessary hard inquiries.
  • You will be able to improve your score.

Usually, a credit score is between 300 and 900. A higher score means you’ve handled the past credit well, while a lower score means you can’t be trusted to repay the credit. Although personal loan approval and interest rates highly depend on the credit score, a score higher than 750 increases your chances of approval. However, other considerations also come into play. Creditors scrutinize the type of loan, either secured or unsecured, the loan tenure and the amount before deciding to approve an application.

To be updated on your credit score, request a report from any major credit bureaus like ICRA.

What to Do If Your Loan Was Rejected

If your loan application was rejected, here are some tips on how to handle that:

  1. Check the Decline Notice

Any lender that rejected a loan application must provide an adverse action notice detailing why the request was declined. And if the decline is due to your credit report, the notice will show you what in the report caused the decline and the bureau that provided the report. Besides, you’ll get a copy of the report.

  1. Improve the Credit Score

If you’ve been rejected for a loan due to a poor credit score, try improving it to secure a good chance of being approved for the loan in the future. Staying on top of your credit is the key to financial stability. Make sure you pay all the outstanding debts you have, as well as repay your loans in full and on time. Additionally, increasing your available credit card limit for house expenses can help.

Develop a healthy mix of different types of credits and stay below 30% of the allowed credit limit. To ensure no errors are present within your report – check it regularly and resolve it immediately. Finally, avoid being a guarantor; this will also keep others from affecting your standing with lenders.

  1. Try Applying for a Loan with NBFCs

Financial Institutions that do not have a banking license but still offer loan and credit card services are known as Non-Banking Financials (NBFCs). This type of institution provides customers with various economic solutions, enabling them to make sound financial decisions. Non-Banking Financial Institutions (NBFCs) offer more flexibility for those with bad credit scores. Although NBFC’s loan products are convenient and easily accessible, the downside is that they generally cost a bit more in terms of interest rates.

  1. Opt for Peer-to-Peer Lending

If you are dealing with a poor credit rating, taking out loans from Peer-to-peer (P2P) lenders might be your ideal solution. Although these companies offer low-value loans without collateral or security, the interest rate is likely much higher than usual. However, the good thing is that you may get the loan even with a low score.

  1. Apply for a Smaller Loan Amount

Rather than asking for the amount of money you initially aimed for, try asking for a smaller loan. This will make it look less risky to your lender and may improve your debt-to-income ratio, potentially helping you qualify faster.

Even though obtaining less than you need may not help you achieve your goals as quickly, it might be the more prudent decision. For instance, if borrowing a lesser amount with a lower interest rate allows you to start paying off debt earlier rather than later, that could be the right move for you. Consider your choices and calculate how each will impact your finances.


A personal loan rejection can be a big blow to you, particularly when you need money urgently. Nonetheless, there are numerous approaches to handle the issue and better your odds of being approved. Improving your credit score before applying again can be a wise move. Besides, you can try applying again but with a smaller amount.