Have you been turned down for a loan recently? If so, you’re definitely not alone.
Thirty-two percent of mortgage applicants were turned away last year, as were a whopping 76 percent of personal loan applicants.
It’s incredibly frustrating to be turned down for a loan. Luckily, though, there are a lot of things you can do to increase your chances of getting approved in the future.
Read on to learn seven strategies that can help you to get approved for a loan.
Reasons You’re Getting Denied
The first step toward getting approved for a loan is to figure out why you keep getting denied. Once you’ve figured that out, then you can take additional steps to increase your chances of approval.
There are a number of reasons why someone might get denied for a loan, whether it’s a small business loan, a personal loan, or a mortgage.
Here are some of the most common reasons your loan application keeps getting turned down:
Low Credit Score
A low credit score is one of the most common reasons why people have their loan applications denied. Check your credit report to see where you currently stand.
Insufficient Collateral
If you’re applying for a secured loan, you need to be able to put up collateral such as a car or your home. If you lack sufficient collateral, you’re unlikely to get approved.
Debt Utilization is too High
If your debt utilization is too high — meaning you owe a high percentage of your monthly income — you’re going to have a hard time getting approved for a loan.
Application/Paperwork Mistakes
Sometimes, the reason you got denied is simply that you made a mistake when filling out the paperwork and missed something important.
Credit Report Errors
If you have errors on your credit report, your credit score could be appearing lower than it actually is.
Thin Credit File
If you do not have a long enough credit history, lenders may be hesitant to approve your loan application, especially if you are asking for a substantial amount of money.
Too Much Debt
The issue could also be that you simply owe too much money. If you’re swimming in debt, lenders are unlikely to allow you to take on more.
How to Get Approved for a Loan
Do you have an idea of why you were turned down for a loan the first time you applied? If so, now is the time to start changing your situation so you can increase your chances of approval in the future.
Here are some different strategies you can utilize to make it more likely that you’ll get approved:
1. Improve Your Credit Score
One of the first steps you ought to take after getting turned down for a loan is to check to credit score. Ideally, you’ll get it up to at least a “Good” rating (700 or above).
Some people can get approved for a loan with a “Fair” rating (640-699). But, the higher you can get your credit score, the better.
Some steps you can take to boost your credit score include paying down your debt and making your payments on time.
2. Find the Right Lender
Sometimes, the issue is that you’re working with the wrong lender. Some lenders have stricter requirements for approving loans than others do.
If you’ve been turned down by one lender, you might want to consider seeking out another one to find out if they’ll approve your application.
Online lenders tend to have slightly more lax requirements, so you might have a better chance of getting approved working with one of them.
3. Adjust Your Debt-to-Income Ratio
If you think your debt-to-income ratio is making harder for you to get approved for loans, start taking steps to adjust it in your favor. You might not be able to increase your income, but can you work on paying down your debts?
Spend a few months focused on paying off your debts or at least lowering them by a significant amount. If you do this, you’ll also improve your credit score, which will help to increase your chances of approval.
4. Dispute Credit Report Errors
Remember, errors on your credit report can bring down your score and make it harder for you to get approved. When you’re checking your credit score, check report to see if there are any old debts or other errors that need to be resolved.
5. Ask for Less
Nobody wants to have to settle for less when they’re applying for a loan. In some cases, though, that’s the best thing you can do.
If you get approved for a smaller loan, that’s still better than not getting approved for anything at all. You can also use the smaller loan to build up your credit score and increase your chances of approval in the future.
6. Provide Proof of Income
If you don’t provide sufficient proof of income when you first apply for a loan, lenders will likely be hesitant to approve your application. Make sure you’re providing them with plenty of evidence of what you earn each month so they can make a more informed decision.
7. Consider Getting a Co-Signer
Finally, if all else fails, you might want to consider getting someone to co-sign your loan. A co-signer with good credit can help you to get approved.
It can sometimes be hard to find someone to co-sign your loan since this is a big responsibility and their credit will be affected if you default.
If you do have a parent or family member who’s willing to co-sign, your chances of approval will go up dramatically.
Need More Financial Advice?
As you can see, there are a lot of different steps you can take that will make it easier for you to get approved for a loan.
Put these tips into practice and you’ll have a much easier time getting your application approved.
Do you need more financial advice? Whether you need help managing your investments, staying on top of your bills, or creating a budget, we can help.
Check out the Finance section of our website today for all kinds of helpful tips and tricks.
