Why it can be hard for single parents to get a loan…what they can do
As a single parent, the chances are good that you're going to want or need a loan for any number of reasons, whether you're thinking about getting a new vehicle, buying a new house, paying for urgent repairs or unexpected bills, or take a much-needed vacation.
Regardless of the reason you are interested in taking out a loan, you might have a harder time qualifying for loans for a variety of reasons.
Here are some of the most common reasons your loan might get denied:
Having Negative Marks on your Credit Report - Late payments on credit cards, mortgage payments, and personal loans, especially recently, have a substantial negative impact on your credit score. Other adverse marks include collection accounts and public records like bankruptcy.
A High Debt to Income Ratio - Ideally, all financial institutions lend responsibly based on the applicant's ability to pay back the principal and the interest on the loan. To qualify for loans, a debt to income ratio of around 36% is usually acceptable. People who carry a higher debt to income ratio run the risk of not paying back their bills because they already owe most of their money to others.
Not Enough Credit History - Single parents who don't already have a well-established credit profile may not have enough history for lenders to make an informed decision about the creditworthiness of the applicant.
If you were denied a loan for any reason, here are a few tips to increase the chances of getting approved for a loan:
Review your Credit File - Not sure what is on your credit report? Now is the perfect time to check and review! If you find inaccurate or outdated information, file disputes to get the misinformation removed from your file. If you have collection accounts, ask the creditor to verify the debt. Take steps to get your credit profile as accurate as possible.
Get a Secured Credit Card - A secured credit card is a way that single parents or anyone can start building - or rebuilding - their credit. This type of credit card requires that users make an initial deposit that is equal to the total credit line offered. Issuing banks take a smaller risk of issuing the card because the 'balance' was paid upfront. In turn, the credit card issuer reports to the credit reporting agency, which starts building a favorable credit report. Secured cards also come with costly annual fees and interest charges, if the account balance isn't paid off in full at the end of every billing period.
Get a CoSigner - If you are really in need a loan and you don't meet the lender's requirements due to a low credit score or other reasons, you might have the option to have someone co-sign the loan with you. When using a cosigner, it's extra important that you make all agreed payments for the loan on time. Otherwise, your cosigner could have their credit score drop or be held responsible for any outstanding balances due on the account.
Get Details on Single Parent Financial Help Below
Review different finance options for single parents from national and local financiers.
- Here is a list of popular financial assistance programs for a range of needs that single parents can access.
- Review different types of support options for single moms here.
- Check out this list of assistance for single fathers.