Tips To Strengthen A Loan Application
Are you thinking about buying a new house? A new car? A new boat? In many cases, these large purchases must get financed so you can pay them off over a span of years.
The one thing to keep in mind is that when moneylenders review your loan application, they'll use the credit score you have at the time of the review to determine the terms and conditions of the loan if approved.
Planning ahead and strengthening your credit profile in the years or months ahead of putting in loan applications helps assure that you not only get approved for the loan, but you also qualify for the best terms available to you.
Here are some suggestions to strengthen your chances of getting your loan application approved.
Reduce your Debt to Income Ratio - When lenders look at your credit file, they want to be sure that you have the capacity to repay the money they've loaned you. If you already have outstanding balances on credit cards, make a concerted effort to pay down these balances. By doing so, the total amount of your debt decreases and you have more income, which is what lenders prefer to see.
Inspect your credit report - If you see inaccurate or incorrect information getting shown on your credit file, get in contact with the reporting bureau to get it investigated or reviewed. These are called 'disputes.' As a rule, you should avoid applying for new credit or loans if you have open disputes with the CRA's. Be sure to keep any accounts that are "Paid As Agreed" reporting as they are, as this history, even if it is aged, helps prove your creditworthiness and your willingness to repay your debts.
Pay your bills on time - If you already have car loans, credit cards, or mortgage payments, showing a steady and reliable payment history helps build and increase your overall credit score. Ideally, you should have more than two years with no missed payments to qualify for the best loan and credit terms. Haven't been perfect for the past couple years? That's OK! Start where you stand and make a commitment to pay all your bills on time starting today.
Don't have too many credit cards - While it's great to have a number of credit cards available to use at any time, your credit score is likely to take a hit if you have too many open accounts with high-interest rates. Lenders could be at risk of losing their capital should you decide to run all of your balances up and not repay the balance with interest.
Limit the number of hard inquiries to your credit report - A hard inquiry occurs when you put in credit applications or apply for loans. Hard inquiries can remain on your credit report for up to 2 years, but the impact of the query decreases over time. If you're shopping for a new financial product or service, try to get all of the credit pulls completed within a short period instead of spacing them out over the span of several months.
The above covers the main elements a person’s credit file will be determined on if applying for a traditional loan or credit. There are however other types of financing which provide more flexibility on approvals. These are generally small short term loans, a list of these types of finance products can be found here.
Additional resource around CREDIT
Get more information on credit and how to manage it closely to assist you in getting the best rate on finance for whatever your needs.
- Understanding the different levels of bad credit
- How to improve your credit score to purchase a home
- How to get a free credit report each year
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