Many people need to borrow money at some point in their life. The reasons why and the loan amounts may differ but one thing is likely the same for everyone - they want their application to be approved.
If you plan to apply for a loan, here are some suggestions that could help your chances at getting approved:
Check your credit report for errors
Fact-checking your credit report is the first task you can complete prior to applying for a loan. The slightest error could alter the decision of a lender and should be addressed as soon as possible. Thoroughly examining your credit report for discrepancies is also a great way to protect yourself from identity theft.
In addition to ensuring your basic information is correct, examine your report for the following errors:
- Accounts you didn’t open
- Charges you don’t recognize
- Unexpected account balances
- Unexpected hard credit inquiries
If you find unauthorized activity on your account, you can file an identity theft report with the FTC right away.
Lower your DTI
One of the often overlooked and underrated tips for getting a loan approved is improving your debt-to-income (DTI) ratio. This calculation is a percentage of how much of your take-home pay is used to pay your debts every month1. The higher your DTI, the lower your chance may be of getting your loan approved. Some lenders may be more lenient, for example, if you have excellent credit or high equity in a home but DTI comes down to how much income you have available each month to pay back the loan.
In order to lower your DTI, you’ll need to either increase your income or lower your debt. For helpful tips, check out the following blogs:
- How Do I Lower My Debt-to-Income (DTI) Ratio?
- Easy Ways to Start Paying off Your Debt
- Need Extra Income? Check Out These 4 Methods
Improve your appeal
Credit scores and DTI can carry a heavy weight on the lender’s ultimate decision but there is more to the formula. Lenders can look at additional factors in evaluating your application for credit. Here are a couple of additional things to be aware of:
- Collateral - If you are applying for a secured loan, offer collateral of considerable value. For example, a vehicle may be more appealing as collateral than a computer.
- Co-signer - If your credit score or income is lacking, you may want to consider applying with a co-signer to strengthen your application. You may need to be prepared to ask someone to co-sign your loan.
Most of all, try to keep a positive attitude toward getting approved for the loan. If you approach this process as a conquest rather than a challenge, you are already off to a great start. Good luck!