When applying for a loan, you have to do many things to boost your chances of getting approved. This is especially true if you have a bad credit score. However, there’s no universal formula for getting guaranteed approval from a lender. Every lender has different methods of approving a loan based on several factors, even though their requirements are mostly the same.
Luckily for you, there are some things you can do to boost your chances. It might not be a guarantee, but it’s worth trying. Here are some of them.
Clean Up Your Credit
If you’re still considering whether you want to take out another loan, you still have plenty of time to clean up your credit. One of the things you can do is check your credit reports for errors.
Several factors calculate your credit score, and one of the things that can impact it negatively is an error in your credit report. Things like wrong accounts, closed reports shown as open, incorrect credit limits, and even misspellings can be detrimental to your credit score.
Another way to clean up your credit is to get on top of your payments. If you’re already vigilant about your monthly repayments, you can add more by repaying more than the minimum amount. This will benefit your payment history and improve your credit utilization ratio. With these things, your lenders will have a good impression of you when approving your loans.
Rebalance Your Debt and Income
Lenders usually ask for your annual income since they want to know if you can repay the loan if you ever get approved. However, some people don’t know that sources of annual income also includes part-time jobs. That said, lenders usually like to have borrowers with a high income since that reduces the chance of defaulting on the loan. If you have the time and energy, you can go for side hustles like carpooling, selling stuff online, Airbnb, etc.
You could also pay off some of your debts with a side hustle. Boosting your income and paying off your debt simultaneously can improve your debt-to-income (DTI) ratio. Usually, a good DTI isn’t a requirement for some lenders, but if you want to boost your chances of getting loan approval, improving your DTI should be on your priority list.
Don’t Ask for Too Much Cash
Usually, lenders would ask you the reason why you’re getting a loan. If they think you’re borrowing more than how much you need for that reason, it might hurt your chances of getting approved.
Not only that, but if you already have a lot of debt, they will start questioning your ability to repay the loan. In short, don’t ask for more than what you need.
Make Sure That You Can Repay It
This should be obvious, but it’d be best if you showed lenders that you can repay the loan on time, along with interest. An unaffordable loan can be very unappealing to lenders since they’re a business, and they want to get back their money along with the interest as stated in the contract. By boosting your DTI, you can show the lenders that you can repay the loan amount.
Look for the Right Lender
Did you know that you can also shop for lenders? Before settling for one, you should find a lender with a fast and easy application process, convenient methods for sending out the money, and easy approval personal loans and other types of loans. Some lenders don’t even do a credit check and instead focus more on your ability to repay the loan.
Luckily for you, in recent years, many online lenders have popped up, giving you a wide array of options to choose from. Find a good and reputable one and discuss the loans they can offer you based on your repayment ability and financial status. Talking to them about loans will help you greatly when asking them for loan approval.
Find a Co-Signer
Nothing is more important to a lender than guarantees. That said, as a borrower, you should be able to guarantee them that you can repay the loan on time with interest. But if you can’t guarantee that yourself, having a co-signer can be very helpful. A co-signer is someone who will catch the loan terms for you once you aren’t able to repay the loan.
Final Words
Improving your chances of getting loan approval is hard in and of itself, especially if you have bad credit. However, that doesn’t mean that it’s impossible. Cleaning your credit, rebalancing your debt-to-income ratio, or getting a co-signer are just some of the things you can do to improve your chances of getting a loan.
But most importantly, improving your credit score should be the first on your priority list. By following the tips we discussed above, you might land a loan if you’re lucky enough. Good luck!