5 Tips to Avoid Getting Rejected for a Personal Loan

Woman dissapointed at personal loan

Getting rejected for a personal loan is something everyone would like to avoid, if possible. Unfortunately, it can be a common occurrence when applying, as there are so many factors involved that determine one’s creditworthiness — all of which lenders pay attention to when approving or rejecting you for a loan.

In this article, we’re going to highlight 5 top tips to avoid being rejected for a personal loan.

Best Personal loans

#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 Report

Before 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

All of these red flags have one thing in common: they indicate to a lender that you are or have in the past experienced financial stress through the occurrence of these events, which can give them pause when considering you as a good candidate for a loan. Remember, lenders prefer applicants who are less risky and are likely to pay back the loan. If they see a history on your credit report of late or missed payments, bankruptcies, and unpaid collections, they might reject your application.

With that said, knowing what shape your credit report is in will help you manage your expectations. Additionally, if there are a few concerning red flags, you can begin working on improving your financial situation.

How to get your credit report

Everyone 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 Score

Your 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 ne