New Delhi, Sept. 4 -- A loan rejection can be distressing, but the good news for people in the nation is that it does not directly damage your credit score. The impact of a rejection is often misunderstood and requires clarity for better financial decisions.

When an aspirational applicant applies for new credit, lending institutions perform a 'hard inquiry' on the borrower's credit report. Such hard checks, i.e., inquiries, can cause a small yet temporary dip in credit scores.

Still, the outcome of the loan application, whether it is cleared or rejected, is not reported to credit bureaus. This simply means that the mere fact of a loan being rejected is not an important factor in determining creditworthiness.

A single loan rejection lea...