Borrowing has become the crux of our modern society, so there’s nothing worse than being refused credit when you need it. Although there are many options out there (even for those with bad credit), if you don’t know what to look for it can be tough. Fortunately there are some tried and true ways to improve your chances of getting approved no matter what your situation or the loan product you desire. Here are just some of them:
Secured Loans or Co-Signers
If you yourself have been rejected you can improve your chances by offering the lender more security should things go wrong. There are typically two methods of doing this. Taking out a secured loan that requires collateral or signing the agreement with a co-signer. Collateral is when you use your home, vehicle or other valuable asset as backup should you fail to pay the loan back. A co-signer is a friend, family member or partner that agrees to share the burden. They are responsible for the outstanding debt if you fail to pay it. In some respects they become your collateral.
Choosing these types of loan will make it easier to be accepted and often for higher amounts, but they’re not always ideal. Here are some other tips to improve your chances.
Check Your Credit Report
Despite being the gateway to your credit history and a clear sign of your eligibility to borrow, it’s surprising how many people never bother to check their credit report. It’s not just important to view your overall score, but to double check that all of the information on the report is up to date and accurate. Occasionally a former lender may have left something negative that isn’t accurate or failed to record payments you have indeed made. Some accounts might not even be on there at all when they should be. This could be holding you back from being approved for a loan and you don’t even know it.
The higher your credit score the more access you will have to credit and you will be given better rates. The only sure way to improve your score is to successfully make payments. So if you are struggling, try opening a small manageable account (such as a basic cell phone contract) and in the months to follow your rating will slowly climb.
Research Your Eligibility First
Many people don’t realize that the very act of applying for a loan (even if you are rejected or you turn down the offer) is recorded on your credit report. If you have applied for lots of different types of credit in one go it can even lower your score, because it acts as a sign to lenders that you’re desperate for credit and other lenders aren’t approving you – so why should they?
To avoid this problem you should research the loans you wish to borrow before applying and ensure you meet their basic eligibility requirements. Fortunately lenders are becoming a lot more open with this information and many sites now exist that offer “soft searches” and pre-application information that can give you a good idea whether you will be approved before submitting a full application with the lender.
Are You Choosing The Right Loan?
Many different loans exist for many different purposes. It is important to apply for a loan that suits your needs the best, and failing to do so may be the reason for your application being rejected. In simple terms, could you be borrowing too much or requesting a loan term that is too long (or short?)
A payday loan for example is a small term commitment over just a couple of weeks. If you want to borrow a large sum of money you wouldn’t apply for this type of loan, you would need a longer term commitment with monthly installments.
Do you even need a loan to be paid directly to you, when an overdraft could meet your requirements and is easier to qualify for?
Have Your Documentation
The more evidence you have about your current financial situation, the better the chances you have of being approved for a loan. This can often be presented in the form of documents and statements from your bank account and employment. Many lenders now accept applications online and there will be options to attach digital copies of these to the application. It’s one thing earning X amount and having savings, it’s another to prove it. You could also provide details on your home and business assets, pension and insurance, and other household income.
It’s always tempting to dive right in with the large banks and lenders that everyone has heard of. Price comparison sites will tend to focus on these (because they get commission) and they’ll be the ones you see on TV and when you go downtown, however smaller banks and even online lenders exist that may be more lenient with your application. You might also find better rates as they try to attract more customers.