Personal loans and lines of credit can be useful if you want to consolidate debt, refinance high-interest credit cards, take on home improvement projects, or meet an unexpected expense when life throws a curveball at you. But before you apply for a personal loan or line of credit, it’s good to know what lenders are looking for. Here’s how to get a loan approved.
Check your credit report and credit score
Your credit report and your credit rating play an important role in the approval of a personal loan. Credit reports give details of your credit accounts. They show things like how much you owe, your credit limits, and your payment history. Your credit score is a three-digit number ranging from 300 to 900 that is based on your credit report. Lenders use both to assess your financial health.
Here’s how to get your free credit report from Canada’s two credit reporting agencies, Equifax and TransUnion.
Apply by mail or fax:
- Submit a written request using the form provided by Equifax and TransUnion
- Provide copies of two acceptable forms of identification, such as a driver’s license or passport.
To order your report by phone, you will need to confirm your identity by answering personal and financial questions. You will also need to provide the credit reporting agency with your social insurance number and/or credit card number as proof of identity.
If you prefer to get your report online, Equifax and TransUnion offer this service for a fee. Both agencies also offer credit ratings for a fee.
Your credit report and your credit rating play an important role in the approval of a personal loan. Lenders use both to assess your financial health.
Check your credit report for errors
Review your credit report to see if it contains any errors or inaccuracies that could affect your score. For example, if your payments aren’t reported correctly, it could cost you valuable points because payment history is the biggest factor in credit score calculations. If you find a mistake, dispute it.
Be sure to provide your name, address, date of birth, social insurance number, phone number, the reason for the dispute, and any supporting documentation that may prove the validity of your dispute.
Once you submit a dispute, the credit reporting agency that receives it is required by law to investigate and determine if there is an error. If your dispute is valid, the information in question must be deleted or corrected; If the credit bureau determines that your dispute is not valid, they are required to let you know in writing why they have reached this conclusion.
Seek to improve your credit score
Having an error in your credit report removed or corrected could boost your score by a few points, but there are other things you can do to improve your credit score when applying for a personal loan. When researching how to get approved for a personal loan, pay attention to the following:
- Your payment history. Making your payments on time has the biggest impact on your credit rating. Set up email or text message reminders for your payment due dates or, even better, schedule automatic payments for your bills.
- Your debt balances. After payment history, the amount you owe is the most important factor for your credit score. If you maintain one or more credit card balances, you could improve your rating by paying off some of those debts. Remember to pay off cards that have a high-interest rate first.
- Your requests for new credit. If you are going to apply for a personal loan or line of credit soon, refrain from applying for any other type of credit in the meantime. Each new credit application can lower your score by a few points.
Pay attention to personal loan requirements
Take a look at the different borrowing options to get an idea of which loans and lines of credit you qualify for. It is good to ask different lenders what they expect from borrowers.
Here are some helpful questions to ask:
- Is there a minimum credit score required to obtain a loan?
- Do I need to have a certain income to qualify for a loan?
- Can I apply for a loan with a co-signer if I don’t have a perfect credit report or sufficient income?
- What types of borrowers do you usually deal with?
Asking these questions can help you get an idea of what a lender is looking for and determine if you would be a good candidate for a loan from them based on the answers they give you. It can also help you come up with a game plan if you don’t meet all of a lender’s requirements.
There is no miracle recipe or magic trick to getting a personal loan approved. You need to have a good credit score and a good financial situation and know the expectations of lenders. By taking the time to improve your credit report and educate yourself about the loan process, you’ll likely put yourself in a better position to get approved for a personal loan.