Applying for a loan isn’t something you should worry about as almost everyone does it at some point in their life. Although not everyone might receive the outcome they are hoping for, there are steps you can take in order to increase your chances of approval.
Check your credit score
The first thing to do is check your credit score. It’s relatively easier to do today as some credit reference agencies (CRA) also operate online now. Family Money highlighted the role of CRAs in completing this assessment process, from conducting a thorough report to preventing identity fraud, which the UK is seeing a lot of in recent years. A borrower’s credit score is the first thing that lenders check to verify eligibility for approval and CRAs collect and present the data that is available. A borrower’s credit score is the first thing that lenders check to verify eligibility for approval. This is also a good time to update your information, ensure that all financial accounts reported are accurate, and you haven’t been targeted by fraudulent activity, which can significantly lower your credit.
Opt for the right lender
Once you have determined your standing, you can now start canvassing for the correct lender. Most major banks automatically decline applications that don’t meet a particular credit score. Some even have a minimum income or employment requirement so have a look at those conditions. However, you can browse the market for smaller institutions who loan smaller amounts to people who are trying to restore their credit. Remember to be realistic about your financial situation and the amount you’re borrowing.
Provide a collateral
There’s still hope for your application even with low credit if you provide collateral. This is called a secured loan. You can use your home, car, investments, or even future pay cheques as collateral. Just make sure that you will be able to pay off your loan if you don’t want to risk forfeiting these assets.
Provide a co-signer
Aside from providing collateral, a co-signer might make your application more appealing. A co-signer is someone who signs an agreement with the bank with you and is in good financial standing. That means they have an ideal credit history if yours doesn’t qualify. Before asking someone to co-sign an application, inform them of the risks of the process. Forbes highlights that it also affects their own credit score if you are unable to make payments on time. It’s best to have a strong relationship with a co-signer such as a spouse or a parent as it can be a risky financial move especially on their part.
Double-check your information
As mentioned earlier, providing accurate information is key. Ensure that you submit the necessary documents for your application. It’s important to double-check that you have completed these steps and corrected all the details because the likelihood is that your application will get rejected if you provided erroneous info. Verify all the details such as contacts, financial accounts, and employment records.
Pay off outstanding debt
The best way to improve your credit score is to limit your outstanding debt. Start with your credit card. Nerd Wallet outlined three different approaches to improving your score which are paying off the full balance, making slow payments, and paying off one card at a time. Another thing to watch out for is your debt-to-income ratio. A high ratio means that you owe more than you are able to pay off with your income and banks will definitely pick up on that.
The solution to having good credit and avoiding debt is to live within your means. If you make smart financial moves now, you can even save enough money to invest. Techie Doodlers previously discussed why everyone needs to invest and how it helps you avoid living from this month’s pay cheque to the next. Investing and keeping these tips in mind when applying for a personal loan can help lead to a more financially secure future.
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