Wouldn’t you like personal finance to be a required course in college? Unfortunately, many of us learn by mistake. When you need a personal loan and get turned down, you may not know what went wrong and how to fix it. Here are some clues.
NO CREDIT
No credit is a situation where you have never used credit and therefore have no credit history for the bank to review. They have no way of making an informed decision about whether or not you will repay a personal loan based on your credit history. No credit is worse than bad credit. Qualifying and making regular payments on these types of introductory forms of credit can beat a “no credit” score:
student loans
Secured credit card (includes a down payment amount)
Being added to a parent’s or spouse’s good credit: card, car loan, etc.
LOW CREDIT
Low credit takes several forms. If you are using more than 30% of your allowed debt, it can negatively affect your score. Too many questions of looking for loans will also affect you a lot. Late payments, defaults or bankruptcies are giant red flags and can take a long time to recover from.
Other things lenders may consider are whether or not you have significant assets in the event of a loan default. They also check to see if your debts are diversified or if you only have one type of debt.
ENTRY
Proof of income is usually required when applying for a personal loan. If you are unemployed or underemployed, it can work against you in the loan approval process. Lenders may also require an employment history to see how long you’ve been with your current employer and to determine if you normally have job stability. Frequent job loss or change will signal to the creditor that your payments may not be reliable.
PURPOSE OF THE LOAN
Believe it or not, your application may be denied due to your intended purpose for the loan. Financial institutions have the right to set the parameters surrounding your disbursements and can accept or reject your request based on what you want to use the money for.
BLACKLIST
If you have defaulted on a debt before, your name may appear on a list of who not to lend to, also known as a “Black List”. This will follow you for a long time and is difficult to erase. If you resolve the debt problems, get documents to prove the resolution.
LOAN WITHOUT CREDIT CHECK
If you need a loan now but are worried you won’t qualify for a personal line of credit, you may qualify for a no credit check loan. You could be on your way to a better financial future in no time!