Improving your credit and reducing debt are effective strategies to enhance your eligibility for a personal loan.
Getting approval for a personal loan does not follow a one-size-fits-all formula. Lenders have different criteria, including credit score and income, and certain online lenders even take into account alternative factors such as disposable income or level of education.
However, all loan companies share a common goal: ensuring timely repayment. Therefore, they only approve borrowers who meet their specific requirements. To enhance your chances of qualifying for a personal loan, here are five valuable tips you should consider.
5 Tips to Boost Your Chances of Personal Loan Approval
1. Clean up your Credit Score
Your credit score holds significant weight when applying for a personal loan. The higher your score, the greater the likelihood of approval. Consequently, it behooves you to aim for a higher score to increase your chances of success.
Check your reports for errors. The Consumer Financial Protection Bureau highlights various common errors that can negatively impact your credit score. These include inaccuracies such as incorrect account information, closed accounts incorrectly reported as open, and inaccurate credit limits. It is essential to be mindful of these mistakes to maintain a favorable credit standing.
From now until the conclusion of 2023, you have the opportunity to obtain your credit reports at no cost once a week through AnnualCreditReport.com. Armed with substantiating evidence, you can promptly challenge any inaccuracies through online, written, or telephonic means.
Get on top of payments. To ensure financial stability, it is crucial to proactively make monthly debt payments, exceeding the minimum amounts when feasible. This practice significantly enhances your payment history and credit utilization ratio – the proportion of credit you employ from your available limit. Collectively, these two factors contribute to a substantial 65% impact on your FICO credit score.
Request a credit limit increase. Contact the customer service numbers listed on the back of your credit cards and request a credit limit increase. If your income has increased since obtaining the card and you have a history of consistent payments, your chances of success are higher.
According to Justin Pritchard, a certified financial planner in Montrose, Colorado, it’s important to be cautious when implementing this strategy as it may result in a temporary credit score decline if a hard credit inquiry is necessary. Therefore, it is advisable to inquire with the creditor beforehand.
Also Read-
- How to Reach Financial Freedom: 10 Habits to Get You There
- Everything You Need to Know About Dave Ramsey Investment Calculator in the USA
2. Rebalance your debts and income
Loan applications ask for your annual income, and you can include money earned from part-time work. Consider increasing your income by starting a side hustle or working toward a raise at your full-time job.
Boosting your income and lowering your debt improves your debt-to-income ratio, the percentage of your monthly debt payments divided by monthly income. Not all lenders have strict DTI requirements, but a lower ratio shows that your current debt is under control and you can take on more.
3. Don’t ask for too much cash
When seeking funding, it is important to be mindful of requesting an amount that aligns closely with your financial goal. Presenting a higher amount than necessary can be perceived as risky by lenders and potentially hinder your chances of approval.
Taking out a larger personal loan can strain your budget, affecting your ability to fulfill other financial responsibilities like student loans or mortgage payments. Estimate your monthly payment on a personal loan using the calculator below, considering your desired loan amount and repayment term.
4. Consider a co-signer
If your credit score is not good or excellent (690 or higher), including a co-signer with stronger credit and income can enhance your chances of approval.
According to Pritchard, it is crucial to choose a co-signer for a loan who can comfortably bear the responsibility since they share equal responsibility for loan repayment.
“You may have every intention of repaying the loan, but you can’t predict a job loss, disability or another event that impacts your income and ability to repay the loan,” he says.
Engage in a candid discussion with the potential co-signer to ensure they grasp the associated risks before giving their consent.
5. Find the right lender
Certain online lenders provide transparency by disclosing their minimum credit score requirements, loan amounts, and availability of options such as co-signers.
If you meet the minimum qualifications set by a lender and wish to view estimated rates and terms for a personal loan, you have the option to pre-qualify. Pre-qualifying with the majority of lenders initiates a soft credit pull, ensuring that your credit score remains unaffected.
Before committing to a loan, it’s wise to pre-qualify with several lenders and carefully evaluate rates and terms. The ideal loan option will align with your budget, ensuring manageable costs and payments.
[…] 5 Tips to Boost Your Chances of Personal Loan Approval […]