How to improve personal loan applications: 6 ways to boost approval odds

Emily Parkin

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

Before you take out a personal loan, read about 6 things you can do to improve your personal loan application and increase your chances of approval. (Shutterstock)

Personal loans can help you cover a variety of projects and unexpected costs. The best way to get approved for one is with good credit and a low debt-to-income (DTI) ratio. 

If you need a loan, these six tips can help you improve your personal loan application and increase your chances of being approved for the funds you need. 

Shopping around and comparing lenders is a good place to start before submitting a formal personal loan application. Credible makes it easy to see your prequalified personal loan rates from various lenders, all in one place.

1. Decide which type of personal loan you need

Personal loans are installment loans, meaning you receive a lump sum of money up front and then repay the loan with fixed payments over an agreed-upon term. But not all personal loans are created equal. You have many different types of personal loans to choose from, including: 

2. Review your credit report

Your credit score is a three-digit number that gives lenders an idea of how likely you are to repay money that you borrow. It’s calculated based on your payment history, the number of accounts you have, the type of accounts, your credit utilization (how much credit you use versus how much available credit you have), and the length of your credit history.

Lenders look at your credit score when they review your loan application. A higher credit score usually increases your chances of being approved and landing a better interest rate. By making on-time payments and keeping your credit utilization low, you can boost your score. 

It’s a good idea to pull your credit reports from the three major credit bureaus at least once a year — you can do this for free by visiting AnnualCreditReport.com. Once you receive your reports, review them for potential errors, such as missed payments that you didn’t actually miss or accounts that you didn’t open. Dispute any mistakes you find with the appropriate credit agency.

Visit Credible to compare personal loan rates from various lenders, without affecting your credit.

3. Improve your credit score

If you have a fair or poor credit score, these are some things you can do to boost your score and increase your chances of personal loan approval: 

  • Pay your bills on time. Even one missed payment can take a toll on your credit score. That’s why it’s important to pay your mortgage, credit cards, auto loans, student loans, and other bills on time, every time.
  • Pay off your debt. The lower your credit utilization ratio, the more likely a lender will be to approve you for a loan. By repaying your debt, you can improve your credit utilization ratio and, in turn, boost your credit score.
  • Don’t close credit card accounts. Even if you don’t use certain credit cards anymore, keep them open. This can increase the length of your credit history, which may help your credit.
  • Limit new credit accounts. Only apply for new credit when you absolutely need it. Applying for too many credit accounts at once can hurt your credit score because they cause hard inquiries on your credit report and lower the average age of your credit accounts.

4. Don’t borrow more than you need

While it may be tempting to request more money than you need to meet a financial goal, like a car repair or kitchen remodel, this can do more harm than good. Since a larger personal loan will come with a higher monthly payment and affect your ability to cover other financial obligations, lenders will consider it more risky. This can make it more difficult for you to get approved for a loan. 

5. Consider applying with a cosigner

A cosigner is typically a family member or close friend with a good credit score and stable income who agrees to repay your loan if you default. 

For example, if you apply with a cosigner because you’re unemployed or your credit is shaky, you may get approved for a loan that you wouldn’t be able to qualify for on your own. You might also secure a lower interest rate, which could save you hundreds or even thousands of dollars over the life of the loan.

While a cosigner can make your personal loan application more attractive to a lender, it’s important to consider the potential drawbacks of applying with one. If you fall behind on your payments, you could put the cosigner in a tough position and damage your relationship — as well as their credit. This is why you should only apply with a cosigner if you’re confident you’ll be able to pay back your loan as agreed.

Also, it’s difficult to remove a cosigner from a loan once the funds have been disbursed. Your cosigner may be stuck with the responsibility for the debt for quite some time until you pay it off. Make sure the cosigner you choose not only understands this risk, but accepts it. 

6. Find the best personal loan lender for you

There’s no shortage of personal loans on the market. Take the time to shop around and compare a variety of products from banks, credit unions, and online lenders. Look at their amounts, interest rates, fees, and any special perks they might offer.

This can help you find the ideal personal loan for your unique situation. 

Credible makes it a breeze to compare personal loan rates from multiple lenders without a hard credit pull or any effect on your credit.

https://www.foxbusiness.com/personal-finance/improve-personal-loan-application

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