It hurts to get rejected … from a love interest or for a personal loan. But once the sting has subsided, you can get your mojo back. Follow these guidelines to improve your chances of being approved for a personal loan in the future.
Improve Your Credit Score
During the application process, you likely learned your credit score. Most lenders use the FICO rating system to compare your credit worthiness to a standard scale score.
FICO scores range from 300 to 850 and fall into one of five categories:
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Poor – 300 to 579
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Fair – 580 to 669
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Good – 670 to 739
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Very Good – 740 to 799
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Excellent – 800 and up
If you were rejected for a personal loan, it’s safe to say that you need to improve your credit score. Whether you need to raise your score from Poor to Fair or from Fair to Good, these tips will help you do just that.
Check Your Credit Report
According to a recent study conducted by the Federal Trade Commission, 13% of Americans have errors on their credit reports. An error could be negatively impacting your credit score, and you may not even know it.
You can get a free copy of your credit report from each of the three main credit reporting agencies—Equifax, Experian, and TransUnion—once every 12 months by going to annualcreditreport.com. Check your credit report for identity errors and errors associated with your accounts, such as dates accounts were opened, current balances, and credit limits. If you find an error, you should contact the credit reporting agency and the lender or company who furnished the information to the credit reporting company.
Pay Your Bills on Time
Payment history—the single-most important aspect of your credit worthiness—accounts for 35% of your overall FICO score. Every time you pay a debt on time, you bolster your payment history. Unfortunately, the opposite is true as well. The goal is simple: NEVER miss or make a late payment.
One easy way to ensure your bills are paid on time every time is to set up automatic payments. Most utility companies and lending institutions offer an autopay option. Provide creditors with your checking account number and your bank’s routing number. Then sit back and watch your payment history rack up points toward reaching your credit goals.
Pay Off Debts
Pay outstanding debts off completely to improve your debt-to-income ratio. Your total debt accounts for 30% of your FICO score, so paying every balance in full will raise your credit score dramatically by widening the gap between what you owe lenders and what you earn and by reducing the amount you owe overall.
You’ll never pay your balances off if you only pay the minimum payment each month. That is an exaggeration, of course, but not much of one. Minimum payments were designed by lenders to make you pay more in interest charges over time. Don’t be fooled! Pay off your debts as quickly as you can.
Common Strategies for Paying Off Debt
Avalanche Method - Focus your efforts on paying off high-interest debt first. Since revolving lines of credit, like credit cards, typically have higher interest rates and accrue compounding interest, paying more on your high-interest debt saves money in the long run.
Snowball Method - Focus your efforts on paying off your smallest debts first, regardless of their interest rates. This method won’t save money, but because you pay off smaller debts faster, you will likely feel motivated to continue paying off your debts one by one.
Consolidation Method - Enlist the help of a credit counseling agency to consolidate
several debts into a single payment with a lower interest rate to make it easier to manage your payments. Enrolling in a debt management plan through a credit counseling agency also forces you to close any open lines of credit and prevents you from opening any new ones until your consolidation loan is paid in full.
Become an Authorized User
If you have a friend or family member who faithfully pays their credit card bills, ask to be an authorized user on their account. They don’t have to share their account information with you or even give you access to a credit card. All they have to do is keep making on-time payments, and you’ll reap the benefits.
Get a Cosigner
Ask a family member or friend with very good or excellent credit to cosign on a small installment loan to demonstrate your credit-worthiness to lenders and boost your credit score. Then, make your monthly payments on time and in full. Remember, more than just your credit score is at stake when you ask a loved one to be your cosigner. Protect your credit and your relationship. Always pay promptly when you have a cosigner.
Increase Your Income
Another major factor contributing to your creditworthiness is your income. Both your income in general and your debt-to-income ratio affect a lender’s willingness to offer you a loan. Here are some ways you can increase your income.
Ask for a Raise
Most people would rather continue to work for less than they’re worth than to ask for a raise. Asking for a raise won’t be easy, but it will definitely be worth it. Before approaching your boss to ask for a raise, do your research. Find out what other people in your line of work are earning in your location. Then, document your track record of accomplishments. Your boss will be much more likely to say yes if you support your request with documentation.
Get a Better Paying Job
If your boss lets you know that a raise or promotion is absolutely out of the question, it may be time to look for a better paying job. Don’t quit your current position until you’ve secured another job, and be sure to give two weeks notice as a professional courtesy to your current employer.
Get a Part-Time Job
If your schedule permits, you may consider getting a part-time job in addition to your full-time position. Remember that you don’t have to make a huge time commitment, and you don’t have to stick with it after you’ve met your financial goals.
You have the power to change the outcome the next time you apply for a personal loan. Use these suggestions to improve your credit score, increase your income, or both. Then, when you’re ready, come talk with a loan professional about applying for a personal loan at AMG Finance. Let us help you improve your financial future.
