Listen up. Do you want to know a secret? The way to a lender’s heart is to convince them you’re a safe bet. A few little tricks here and there and you’ll soon be able to coax them into giving your bank account the cash injection it badly needs.
There may be what feels like a tsunami of expenses coming your way. Wave goodbye to any more sleepless nights. Help is at hand. Your cash flow could soon be unblocked. Read on to find out how to improve your loan approval odds.
1. Analyze Your Credit Scores
The higher your credit score, the more likely you are to be approved for a loan. The better rate of interest you may also be able to achieve on your loan. For lenders, it all comes down to risk. They will want to see evidence of your borrowing history.
They’ll want to check that you repaid loans you’ve taken out previously on time. You should always check your credit score by reviewing your credit reports. Do this before applying for any loans.
Consumers are allowed a free credit report every twelve months under federal law. You should take advantage of this in order to be sure that your score is as good as possible.
Improving Your Credit Scores
Check your reports for errors. These can affect your score and are not uncommon. They could include you being associated with accounts that aren’t yours. There may also be closed accounts being reported as open or incorrect credit limits.
Take up any errors online, in writing or by phone. Provide as much evidence to support your claims as possible.
Lenders prefer to see a borrower with a mix of a few credit cards, and other installment loans such as mortgages.
Be careful not to apply for too many credit cards in a short space of time. This is because every application generates a credit inquiry. Too many applications made too fast could put off a potential lender.
The duration of your credit history is also a factor in credit scores. Scoring models sometimes take note of the average age of all your accounts. It can be a good idea to keep old credit card accounts open even if you no longer use them.
2. Making Monthly Payments
There are many ways that you’ll be able to improve your credit score. Always make the monthly payments on other loans you already have. This should be done on time. Missed payments are like red flags to lenders and can harm your credit score.
The same principle also applies to any rent you pay, utilities, or cellphone bills. Late or missed payments can harm your credit scores.
If you do ever make a late payment even if it’s by mistake, contact your lender or service provider straight away. Make your excuses and pay up immediately. It’s always a good idea to reach out to any lenders you have if times get hard.
Your credit utilization ratio is the percentage of your available credit that you’re using. This, together with your history of repaying loans, can make up sixty-five percent of your credit score.
Try to keep your overall credit card use to below thirty percent of your monthly income.
3. Major Assets and Co-signing
If you have any large assets, you may be able to use these as collateral and borrow against them. There are risks involved here. You could lose your home or car if you don’t make the required payments in the future once you have the loan.
If your income and credit are not as good as they could be, you could ask a family member or friend to help. They could combine their income and credit history to yours and take joint responsibility for the loan. This is known as co-signing.
The co-signer would, therefore, be making the loan application with you. They would then be jointly responsible for the repayments. There are emotional risks here because mixing money with friends and family can sometimes end in tears.
Only use a co-signer who is able to fully understand the risks involved. Because the co-signer is equally responsible for repaying the loan, it’s critical to co-sign with someone who you know can afford to take the risk.
4. Re-balancing to Improve Loan Approval Odds
Lenders will want evidence of your annual income. That includes any money earned in extra part-time work you do outside of your full-time job.
If you don’t already have any extra work, you should consider taking some on, at least temporarily, if it’s possible. You could use the extra cash to help pay down any debt you already have.
If you increase your income and lower your debt, you’ll improve your debt-to-income or DTI ratio. Not every lender has strict DTI requirements. But, a lower ratio demonstrates your current debt is under control and that you can take on more.
5. Finding the Right Lender
Most online lenders will publish or let you know their minimum requirements for credit scores and annual income. They should also tell you if they offer options like co-signing.
The best loan option has costs and repayments that should fit with your budget or living situation. If you’re living with a disability, for instance, you may qualify for some types of disability loans.
Let’s say you do meet a particular lender’s minimum qualifications. You may want to see examples of estimated rates and terms. You can do this by pre-qualifying for financing.
Pre-qualifying usually triggers a soft credit pull, which has no impact on your credit score. You could, therefore, pre-qualify with multiple lenders to compare rates and terms.
It’s not a good idea to apply for more money than you need to achieve your financial goal. If you do, it can be seen as risky to lenders. Be realistic about the amount you want to borrow.
Remember that a bigger personal loan will squeeze your budget. Higher loan payments will have an impact on your capacity to meet all your other financial obligations.
A Brighter Future
If you plan ahead, you should be able to get much better loan approval odds. You can also improve your credit score, add a little extra income and shop around for the best deals.
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