Credit score: Why do borrowers face loan rejections? Key reasons explained

When applying for a loan, customers typically need to demonstrate their creditworthiness through their credit score.

When this score is high, customers find it easy to raise a loan. Conversely, when the score is abysmally poor, there could be a high chance of loan rejection. However, it is not only a poor credit score which is responsible for the rejection of a loan. There could be other reasons as well.

For example, the customer may not have a credit history, or their income may be too low to qualify for a loan. Here we list out all the reasons responsible for loan rejection.

Loan is typically rejected for an array of reasons.

I. No credit history: The loan could be rejected because there is no credit history of the applicant. Either the borrower has just started to earn or has never held a credit card or maintained a credit account. This does not mean the person is not creditworthy or that his income is low. People in rural households face this problem irrespective of income level.

II. Low credit score: Sometimes the credit score is too low for the loan approval to get by. For example, if the borrower's score is below 600, the lender may turn down the loan application.

III. Current liabilities: There could be an occasion where a personal loan is rejected because the current liabilities are too high against the current income. If your current loan EMIs are almost half of your income, lenders may get suspicious of your ability to repay the loan.

IV. Low income: Last but not least, loans also get rejected because the borrower does not fall in that income bracket for a loan of a certain amount to be approved. Generally, banks give a certain multiple of cash in hand every month. When you apply for a loan beyond this threshold, the loan may get rejected.

Disclaimer: MintMoney has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. MintMoney does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.