Your loan application is rejected’- a message like this could bring a lot of disappointment especially when you need financial aid for an emergency. While there could be ways to get money, not knowing the reasons for the rejection could deter you from taking further steps to improving the chances of getting approved for your upcoming loan application.  

Low credit score is one of the most common reasons, wherein most loan and credit card applications get rejected. With a low credit score, the lender simply does not want to take a risk in offering you any form of credit as your credit score represents you as a risky borrower. One may wonder what could have led to the low credit score. While it could be hard to figure out the reasons all by yourself, we have listed out the most probable reasons that could have decreased your credit score.  

Why is your Credit Score low? 


 What to do 

 Delayed Repayments 

 Pay the penalty, if needed, and pay all the payments asap 

 Misses Payments 

 Pay the penalty, if needed, and pay all the payments asap 

 Poor Credit Card Utilization 

 Manage your spends with another card or increase your limit to reduce your utilization to below 30% 

 Multiple Loan Applications 

 Don’t apply for too many loans within a short period, especially when your Credit Score is low 

 Administrative Error 

 File a dispute on your Credit Report 

 Negative Accounts 

 Resole negative accounts asap. These have the maximum weight in pulling your Credit Score down 


Delayed Repayments 

Late payments could happen especially when you run through a cash crunch or you may forget to pay your loan EMI or credit card bill on time. Many people do not realize that even one or two delayed credit card bill or loan repayments can affect credit score negatively. The more the number of delayed payments, the greater the negative impact on your credit history and credit score.  

Though you may repay the amount later with a penalty to the lender, it gets reported by the lender as delayed payment to the credit bureaus who generate your credit score and credit report. As a good track record of repayment has a weightage on the credit score calculation, delayed payment can certainly have a devastating effect on your credit health. Ensure that your repayment track record is 100% positive to enjoy a good credit health.  

Missed Payments 

Sometimes unforeseen emergencies can push you in a situation where you may miss an EMI or credit card bill. For example, an unexpected medical expense for a treatment or surgery, or tough times in the business may make it difficult for you to fulfil all your loan obligations. If you miss any payments, it gets recorded in your credit history and lead to a drop in your credit score. 

As major chunk of weightage depends on repayment history, it is vital you do not miss a single payment on your credit card or loan EMI. Moreover, 100% positive payment history is a clear proof to the lender that you are responsible with your financial obligations. Even a single default can damage your credit score, making it difficult to avail credit in the future.  

Additional Reading: Why is my credit score low?

Poor Credit Card Utilisation 

Using a credit card is like having a golden goose. If you know how to use it the right way, you will earn rewards and discounts. When you go on a spending spree, your finance may go for a toss, making you max out the credit card limit and even lead to defaulting on the payment. The credit card issuer may try to make you spend more with your credit card by showering you with offers and discounts. Though it could be enticing, choosing the right spends ultimately lies with you.  

Maxing out credit card limit implies that you are credit hungry which could impact your credit score negatively. Experts recommend that having a credit utilisation ratio of 30% and below is good for your credit score.  

Multiple Loan Applications  

You may not be aware that when you apply for a loan or credit card, the lenders make a hard enquiry that involves pulling out your credit score and report from the credit bureaus. Each hard enquiry made by the lender can impact your credit score slightly. When you apply for the same loan with multiple lenders out of desperation for credit, it could turn things worse for you. Multiple hard enquiries will be made, so there are chances that your credit score may decline. Hence, apply with the lender only where the approval chances are higher. You can check your eligibility for free for all loans on financial portal like CreditMantri which can avoid a potential rejection.  

Administrative Error 

Too err is human. As there is human labour is involved in credit score computation, an error may become inevitable. Occasionally, there may be an administrative error that results in wrong information being recorded on your credit report. Sometimes, this might be the result of fraudulent activity as well. For no fault of yours, these errors could lead to a lower credit score, signalling to future lenders that you have bad credit. 

Negative Issues: Foreclosure, Written-off & Settled Accounts 

Low credit score is bound to happen when your credit repayment has gone awry which resulted in a foreclosure by lenders, written off status or a settled account.  

  • Foreclosure: It happens in secured loans, wherein the lender tries to sell the property through auctions and retrieve the outstanding loan amount.  

  • Written-off: The lender writes off your loan or credit card account if you have continuously defaulted on repayments for 180 days. This gets reported to the credit bureaus by the lender, and your credit report shows written-off status.  

  • Settled: When you are unable to repay the loan, the lender allows you to settle the loan account for a mutually agreed amount which would be lower than the outstanding loan amount. This is an issue which will impact your credit score negatively.  

These three factors can significantly reduce your credit score, making it highly difficult for you to borrow in the future. If you have any one of the issues, it is highly recommended that you clear the issue before applying for any loan.  

End Note 

The importance of credit score is realised by many only when they find it difficult to get a loan or credit card. A good credit score can save you a lot of money when you apply for big ticket loans. If you have a low credit score, find out what affects your score and take necessary steps to clear them right away.