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How to Improve Your Odds of Personal Loan Approval

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There are a variety of reasons you may take out a personal loan. Maybe you’d like to pay off high-interest credit card debt or you need to replace your roof or handle some other major purchase.

No matter why you want a personal loan, there’s no guarantee you’ll get approved for one. The good news, however, is there are some things you can do to increase your personal loan approval odds.
1. Understand what it takes to be approved
2. Improve your credit score
3. Review your credit report and dispute errors
4. Practice healthy financial habits
5. Lock down a steady job or source of income
6. Consider a cosigner or joint applicant

1. Understand what it takes to be approved

Before you formally apply for a personal loan, you may be able to prequalify. Prequalification allows you to explore your loan options without affecting your credit score. It’s a great way to compare multiple lenders before formally applying.

While requirements vary by lender, many of them consider the same things when reviewing your application:

  • Credit history and score
  • Current credit card balances and utilization ratio
  • Income
  • Education and employment history

2. Improve your credit score

Your credit score helps lenders evaluate your creditworthiness or how likely you are to repay your debt. The higher your credit score is, the more likely you are to get approved for a personal loan. To improve or maintain your credit score, keep the following factors in mind.

  • Payment history: Lenders want to see that you have a history of making timely payments. Be sure to pay your mortgage, car loans, credit cards and other bills on time.
  • Credit utilization ratio: Your credit utilization ratio is how much credit debt you have divided by your credit limit. Most lenders prefer a ratio of less than 30% so it’s a good idea to reduce it by spending less and paying your balances off early.
  • Length of credit history: Generally speaking, the longer you’ve had your credit accounts, the higher your credit score will be. So keep old accounts open, active and in good standing if you can.
  • Credit mix: Having a variety of accounts open and in good standing can be good for your credit. It shows lenders that you can juggle different kinds of debt, from student loans to credit cards. However, there are two major types of debt: installment and revolving. Installment loans are repaid over a fixed schedule like personal loans and mortgages. Revolving credit like credit cards represent accounts you can borrow from on a rolling basis. Holding too much debt in revolving credit accounts can hurt your chances of loan approval, as it could signal to lenders that you don’t have a lot of cash flow.
  • New credit: Too many accounts and hard inquiries in a short amount of time can show that you’re a risky borrower. Therefore, you should only apply for and open new accounts when it’s necessary.

Not all personal loan lenders are created equal. Some may have more relaxed requirements than others, which is why it’s a good idea to shop around and explore all options. Your goal should be to find the best fit for your unique situation. If you have bad credit, rest assured there are lenders that may be willing to lend you money.

3. Review your credit reports and dispute errors

Before applying for a personal loan, you should know where your credit stands. Visit to obtain a free copy of your credit report from each of the three major credit reporting agencies: Equifax, Experian and TransUnion. Once you get your reports, take a close look at them to ensure they’re free of errors or inaccuracies.

If you come across accounts you don’t recognize, notice incorrect late payments or another mistake, you can dispute it. The process is free and the request can be made online, by phone or via mail. Disputing any errors and cleaning up your credit will increase your personal loan approval odds.

4. Practice healthy financial habits

Generally speaking, a credit score of 640 or above may qualify you for the lowest interest rates and most favorable terms. If your credit score is lower than 640, you may want to focus on raising it before you apply for a personal loan.

To help boost your credit score, make sure you pay all of your bills on time, every time. If you’re worried you’ll forget, enroll in automated payments or set up calendar reminders on your phone. You should also keep your balances as low as possible, pay off debt and only open new accounts when you really need them.

5. Lock down a steady job or source of income

Lenders want to see that you have the funds to pay back the money you borrow. So if you’re unemployed, they may question your ability to pay the money back. Before moving forward with a personal loan, make sure you have a steady job.

If you are unable to work, you’ll need to show you have a consistent income source from government benefits, Social Security or retirement savings. In the event you don’t, your personal loan approval odds will go way down.

6. Consider a cosigner or joint applicant

In a perfect world, you’d have a high credit score and be able to get approved for any personal loan you apply for. If you’re already following credit best practices and you still can’t qualify for favorable terms, you may need a cosigner or joint applicant to help you secure the funds. When someone cosigns your loan, they’ll be on the hook for payments in case you default.

A joint applicant may be beneficial if you want to take out a larger loan and worry you won’t get approved because of your income or credit. With a co-borrower or joint applicant, they’ll apply for the loan with you and be equally responsible for repayment.

Cosigner vs. joint applicant: Key differences
  • Cosigner promises to repay the loan if you can’t.
  • Joint applicant shares equal responsibility for repaying the loan.
  • Cosigner does not have ownership interest in what you do with your loan proceeds.
  • A joint applicant typically benefits from the loan.
  • Cosigner can allow you to qualify for a loan you may not be able to otherwise.
  • Joint applicant can help you take out a larger loan.

How to find a cosigner or joint applicant

The cosigner or joint applicant you choose should be someone you trust. If you’re taking out a loan to pay off high-interest credit card debt, for example, you may want to ask a friend or family member to cosign for you.

On the other hand, if you intend to use the loan proceeds to buy a boat with your friend, you may want to ask them to apply for it with you. You’ll both get to enjoy the boat, so a joint application makes sense.

If you opt for a cosigner, make it clear they’ll have to repay your loan if you are unable to. Also, show them that you have a stable job and/or steady income and are confident that you’ll be able to make your payments.


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