#1 What are the Lender’s Requirements?Keep in mind that every loan provider has different requirements for borrowers. While there may be some overlap, such as nearly all require you to be 18 years or older, have a bank account, and be a U.S. citizen, some lenders are a bit more selective and may have additional requirements. Some loan providers, for example, will require a minimum credit score when applying for a personal loan. Other lenders may not have a minimum credit score, but they might have a different requirement, such as a minimum income. Be sure to carefully read through a loan provider’s requirements before moving forward with their application process. This will help avoid being rejected and wasting valuable time in your personal loan search. If you’re having trouble finding this information on their webpage, your best bet may be to jump on a quick call with a customer service agent.
#2 Check Your Credit ReportBefore submitting a personal loan application, check your credit report! This document is crucial and details your entire financial profile. The information on your credit report, such as your payment history, current and past accounts, and so on, is what helps lenders determine your creditworthiness, so it’s worth reviewing periodically. The better your credit history looks, the higher the chances you will get approved for a personal loan.
Credit report red flags
- Late payments and delinquencies
- Co-signing on another person’s loan (and thus, incurring their debt)
- Unpaid collection amounts
- History of constant minimum payments, which can indicate financial strain to lenders
- A charge off, which is when a creditor is unable to collect on payments and so they’ve written the amount off as a tax credit.
- Foreclosures and bankruptcies
- Repossession of collateral
- Deed in lieu, which is typically used to avoid foreclosure
- Cash advances
- Frequent credit report inquiries
How to get your credit reportEveryone is entitled to one free copy of their credit report every year from each of the three major credit bureaus—Equifax, TransUnion, and Experian—which you can request by mail or online.
#3 Improve Your Credit ScoreYour credit score will likely play a role in not only what kind of interest rates you’ll get on your loan, but also whether or not your application is accepted. Generally, those with good to excellent scores are much more likely to have their application accepted. If you have a score lower than 670, you run a higher risk of being rejected. The first thing is to find out what your score is and to check if the lender has a credit score minimum. If they do have a minimum that you don’t meet, move on to the next lender. Just understand that the lower your credit score, the higher the interest rates will be. Are you worried your credit score is too low? Don’t worry, there are still loans available for people will lower credit scores. LoansUnder36 and Monevo are two examples of companies whose applications do not require a minimum credit score.
How to improve your credit scoreIf you have some time and can hold off on applying for personal loans, there are a few ways that you can improve your credit score:
- Pay all of your bills on time, every time: As mentioned earlier, lenders care about your payment history and whether or not you’re paying your bills on time. After all, they want to make sure they lend money to someone who pays them on time. Doing so will also influence your credit score.
- Keep balances low and pay down your debt: Another determining factor when your credit score is calculated is how much debt you have. Work on keeping your balances as low as possible and paying off your debt.
- Get added as an authorized user to someone else’s credit: Piggybacking on someone else’s credit card is an easy way to give your credit score a boost, but it only works if that person is making their payments on time. Make sure you only do this with a trustworthy and financially responsible individual or else it could backfire and harm your credit score.
- Check your credit report for errors: While there’s not much you can do about any red flags on your credit report, it’s worth checking for any inaccuracies or errors so you can dispute them. Getting any mistakes removed will help your credit score and improve the chances of a lender accepting your loan application.
#4 Insufficient IncomeYour income also plays a big role when lenders are evaluating your application. Unfortunately, not all lenders are transparent about what the income requirements are when applying for a personal loan. This makes it difficult to know if you have sufficient income or not. While many lenders won’t specify a necessary income amount to apply, generally, loan providers like to see that applicants have a steady stream of income as well as job employment. Having steady income—as well as a steady employment history—shows lenders that you’re more likely to make your monthly payments on your loan. However, it’s still possible to get rejected for a loan simply because your income isn’t sufficient. If you’re worried your income isn’t high enough and you don’t see an income minimum on a loan provider’s website, give them a call to find out. Even if they don’t have a concrete income minimum, they can likely provide you with a general income range that meets their approval.
#5 Don’t rush on your applicationWhile it may be tempting to quickly fill out and submit your personal loan application, don’t! It’s important that all of the details and information you provide is 100% accurate. Just one error or misstep, such as forgetting to submit a document, could lead to your application getting rejected. While a preliminary pre-approval application isn’t as strict and only takes a couple of minutes to fill out to see what kind of rates you’re eligible for, submitting a loan application that requires a hard credit check is a little more extensive.
Documents needed to apply for a personal loanIf you’re not sure what to expect in the personal loan application process, here are some of the documents you may be required to submit along with your application:
- Bank account information and bank statements
- Job pay stubs
- W-2 tax forms
- Employment verification
- Income verification
- Identification, such as your passport or driver’s license
Bottom LineThere’s plenty involved when applying for a personal loan. While it can often feel like an overwhelming process, being prepared and knowing what to expect can make all the difference. Take a look at the lender’s requirements and check your credit score for any errors and to get a better picture of your own financial health. Be mindful of what your credit score is so you can start taking steps to improve it, and don’t rush when submitting your personal loan application. If your financial standing isn’t in the best shape — don’t sweat it. There are plenty of lenders who are more lenient than others and won’t flat-out reject you, even if you have a poor credit score. The key is to optimize your time by finding out from the get-go if lenders have any loan requirements, such as a minimum income or minimum credit score. Regardless of your financial situation, it’s never too early or too late to start making improvements. With these quick tips, you can move forward in your personal loan search with confidence! Best Personal loans