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Boost Your Chances of Getting Your Personal Loan Approved

Cleaning up your reputation and paying down loans are two things you can do to improve your chances of getting a personal loan.

There is no one-size-fits-all formula for getting a personal loan approved. Credit score and income requirements differ by lender, and some online lenders take into account nontraditional data such as free cash flow or education level.

Loan firms, on the other hand, do share one thing in common: they expect to be paid back on schedule, which means they only accept applicants who follow their criteria. Here are five suggestions to help you apply for a personal loan.

1. Clean up your credit

On personal loan applications, credit scores are a key factor. The higher your ranking, the more likely you are to be approved.

Make sure the files are free of mistakes. According to the Consumer Financial Protection Bureau, common mistakes that may harm your credit score include wrong accounts, closed accounts listed as available, and inaccurate credit limits.

AnnualCreditReport.com allows you to get your credit reports for free once a year. Dispute any mistakes online, in person, or on the phone with proof to back up the point.

Stay on top of your bills. If you haven't done, start paying down your loans on a monthly basis, paying more than the minimums as you can. This would improve your payment history as well as your credit usage level, which is the amount of your usable credit that you are already using. These two variables together account for 65 percent of your FICO ratings.

Request a rise in the credit cap. Request an upgrade by calling the customer service numbers on the back of your credit cards. If your salary has increased since you got the card and you haven't missed any payments, you have a great shot.

If a hard pull on your credit is needed, this tactic will backfire and momentarily harm your credit score, so ask the creditor first, says Justin Pritchard, a registered financial planner in Montrose, Colorado.

2. Rebalance your debts and income

You will count money gained from part-time jobs in your taxable salary while applying for a loan. Consider launching a side business to augment your salary or pursuing a promotion at your current employer. Often, do all you can to reduce your mortgage. Consider selling liquid assets in taxable funds, such as bonds. According to Alison Norris, guidance strategist and registered financial advisor at personal finance firm SoFi, applying the proceeds to high-interest consumer loans would yield a higher rate of return.

Your debt-to-income ratio, which is the amount of your monthly debt obligations split by your monthly income, increases as you increase your income and reduce your debt. While not all lenders have stringent DTI criteria, a lower ratio indicates that you have leverage of your existing debt and can take on more.

3. Don’t ask for too much cash

Lenders can view requesting more money than you need to achieve your financial target as risky, according to Norris. “Look at why you're applying for the loan, assign a dollar sum to the financial necessity, and then apply for that amount,” she advises.

Higher interest costs affect your ability to satisfy other financial commitments, such as school loans or mortgage payments, so a bigger personal loan squeezes your income.

4. Consider a co-signer

If your credit score is in the "fair" category, getting a co-signer with better credit and income will help you get approved. Since the co-signer is similarly responsible for the loan's repayment, Pritchard advises co-signing with someone who can afford the risk. “You may plan to repay the loan,” he continues, “but you can't foresee a work loss, injury, or other circumstance that affects your income and ability to repay the loan.”

Until signing, have an open and frank discussion with the potential co-signer and ensure that they are completely aware of the consequences.

5. Find the right lender

Most online lenders state their minimum credit score and annual income requirements, as well as whether they accept co-signers. You will pre-qualify for loans if you satisfy a lender's minimum requirements and want to see estimated rates and conditions. Pre-qualifying for most lenders results in a soft credit pull, which has little effect on your credit score. Pre-qualify with a few different lenders and compare their rates and conditions. The best loan choice would work with the budget in terms of expenses and payments.

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