How to Improve Your Personal Loan Approval Odds
There may come a time in your life when you need to borrow money and a personal loan is your best option.
Whether you are in need of a loan for a short or extended period of time, increasing your personal loan approval odds now will be beneficial for your future. Perhaps you’ll be purchasing a vehicle, consolidating credit card debt, or making home renovations. Whatever the reason why you may need to borrow money, a personal loan could be the answer. By taking action today, you can improve your possibilities of being approved for a personal loan tomorrow.
Know Your Credit Score
The first step to increasing your odds of being approved for a personal loan is knowing your credit score and, if needed, working towards improving your credit. Your credit score is a three-digit number that summarizes your entire credit history. Lenders use your credit score as a way to determine your creditworthiness and default risk. The better your credit score when applying for a loan, the more likely you’ll be approved for a personal loan and have the best interest rates available.
Pay Off Your Debts
Having less circulating debt (such as credit cards or any debt with fluctuating balances and payment amounts) may improve your odds of being approved for a personal loan. Pay down, or even paying off, some of your debt before applying for a personal loan.
Nevertheless, be aware that paying off all your debt entirely may not improve your credit score.
Close Credit Cards Wisely
Your credit score is determined by credit utilization rate (the total amount of outstanding credit card debt you have in relation to your total available credit limit) and the term of your credit history. Closing credit cards wisely is more difficult than it may appear.
You may want to consider:
- Closing newer credit cards with smaller credit limits and cards you’re not using regularly
- Keeping open the credit cards you’ve had the longest, use frequently, and have made regular on-time payments on.
Closing credit cards wisely may clean up your credit profile without negatively influencing your credit score, which can improve your possibilities of receiving approval for a personal loan.
Increase Your Income
One of the factors lenders look at before approving a personal loan is the debt-to-income ratio. If you’re utilizing a high portion of your income to pay off your debt every month, you may be able to increase your personal loan approval odds by increasing your income. Taking on a part-time job or starting your own at home business are great ways to increase your income and decrease your debt-to-income ratio.
Find Joint Applicant Or Co-Signer
Obtaining a personal loan approval may still be difficult even if you follow all of the steps above. A great option is to find a joint applicant. When applying for a loan with a joint applicant, lenders will consider the income and credit history of you and the joint applicant when deciding whether to approve your application. A co-signer is another good option, similar to a joint applicant, that can improve your chances of receiving personal loan approval. A co-signer will be required to step in and make the payments should you default on the loan. A co-signer should be a trusted person who has a solid credit history and strong money management skills.
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