There’s no universal method to get your loan approved. Requirements such as credit score and monthly income will vary from lender to lender. In contrast, some nontraditional lenders will even ask for occupation details to determine whether you can pay off the debt. But all lenders have one thing in common: they want you to pay off the debt in time. To boost your chances of loan approval, consider taking proactive steps. Here are some tips to brush up your application.
1. Balance Out Your Debts and Income
Lenders want assurance that you will be able to pay off your debt in time, which means they will check your income and any debts you might already have. Try getting a part-time job to increase your income. Every extra buck can help convince the lender that you can pay off your debt. And if you already have a debt, pay it down as much as possible before applying for another loan. Not all lenders have a strict debt-income ratio requirement, but if they feel you are already strapped with loans, they might reject your application. A low debt-to-income ratio assures them that your finances are in order and you can repay monthly.
2. The Right Lender
Some lenders are more transparent about their minimum credit score and monthly income requirements, while others won’t give specific details. If you meet a lender’s criteria and want to know more about their terms and conditions, you can pre-qualify for a loan. This results in lenders doing a soft credit check on you, which doesn’t affect your credit score. You can pre-qualify with multiple lenders and check who offers the lowest interest rates and reasonable terms. If you find their terms agreeable, you can choose the right lender.
3. Request Only as Much as You Need
Lenders can see requesting more money than you need as a red flag. A bigger loan amount also requires you to have a significant income bracket and a low debt-income ratio. It can be tempting to request a couple thousand more in your application, and technically, there’s no rule saying you can’t do that. However, lenders will scrutinize your application more closely when someone asks a significant amount. Stick to requesting only the necessary amount to optimize your chances of approval and avoid potential obstacles.
4. Check Your Credit Report for Errors
You should fact-check your credit report before you apply for a loan. Even a minor error can impact the lender’s decision, so it’s better to be cautious. Some examples of errors or discrepancies in credit reports are:
- Accounts you never opened: Inaccurate entries may be rare but they aren’t unheard of in credit reports. Check your report for accounts that you aren’t familiar with to correct any discrepancies.
- Charges that seem suspicious: Banks or lenders charge us for a lot of their services. You should go through them once to make sure none seem unwarranted. If you do find anything, contact your bank immediately.
- Unexpected hard credit checks: Random companies sometimes do checks on potential customers to pitch their services. These should be soft checks that don’t impact your credit score. If any of them are a hard check, then you should file an inquiry.
- Credit frauds: Last but not the least, credit frauds have become way common nowadays. So keep an eye on all transactions on your credit cards.
- Co-signer Loans
If you don’t have a good credit score and are worried your application will be rejected, you can look into a co-signer loan. A co-signer will be equally responsible for the loan, so choosing someone willing to take the risk is essential. If you are going for a co-sign loan, have an honest conversation with the potential co-signer so they know the risks.
Loan applications are daunting, whether for a minor home repair or an emergency. There’s no formula to approve your loan application, but you can exercise caution and brush up on your application before sending it off to lenders. We hope these tips boost your chances of getting your loan application approved.