Ways To Improve Your Chances Of Being Accepted For A Loan

January 15, 2025

Ways To Improve Your Chances Of Being Accepted For A Loan

By : Ellie Brown

Ever since the Financial Conduct Authority has cracked down on loan sharks, profiting from the pain of soaring prices, the loan market has tightened up the acceptance criteria, especially for mortgages. Credit rating, though, is an inexorable factor; the lending decision involves a perusal of several factors.

The three-digit number on your credit report does not provide a foundation for the lending decision. Instead, it aims to reveal what your credit picture looks like. Lenders use their own formula and benchmarks to decide whether or not to approbate your application.

On balance, despite good credit points, your application may be turned down or regarded with great default risk, attracting very high interest rates. As a borrower, you should aim at a loan with the most affordable interest rate. The more the competitive interest rates, the more affordable you will find the loan is. Unfortunately, the acceptance criteria are not a cinch.

Key suggestions to enhance your credit score

With the help of the following suggestions, you will see an exponential increase in your credit acceptance rate:

1.  Be free from debt

Having applied for a loan, your credit report will be thoroughly examined, and if an outstanding debt accompanies it, your chances of being signed off on for the loan are meagre. Lenders calculate your repaying capacity by taking into account how much money you retain after meeting your monthly expenses.

Lenders will be sceptical about your repaying capacity if it is close to net zero because, after an unexpected change in your financial circumstances, you will more likely become a delinquent.

Whether you borrow a loan for people on benefits or an instalment loan, in both circumstances, the consequences will be dire and far-reaching. Not only will you lose your credit points, but you will also accumulate debt. The accretion of debt over time will result in a lawsuit.

Therefore, you should try to have no unpaid debt at the time of borrowing. The absence of a loan in your credit report will improve your chances of being approved by your lender because the default risk seems to be low.

2.  A lower debt-to-income ratio

Having said this above, lenders consider many factors in addition to your credit report. Among other factors, a debt-to-income ratio is a prominent one. It will not influence your credit score, but lenders weigh the owed money against your income to calculate your repaying capacity. A debt-to-income ratio must be less than 30%. It is always advisable to maintain it at 25%, especially if you are seeking a mortgage. A loan with guaranteed approval is a small emergency loan, so a high owed balance will not preclude you from getting the nod.

To remove your debt obligation, you should pay more than the monthly payment. Early repayments will attract early repayment charges, but you will still save a lot of money in interest. Furthermore, lenders will be less likely to call your commitment into question in the absence of debts.

3.  Put down security

Collateral is not a necessity for an emergency loan despite a poor credit score, but it is an indispensable requirement for a large loan like a mortgage. Ideally, the deposit size should be worth 10% to have a lender give the green light to your application. If your credit report is not up to scratch, they will expect a double amount.

Although a 10% down payment will not get in your approval process, it is suggested that you arrange a bigger deposit. When the loan-to-value ratio is less than 80%, your chances of qualifying for lower interest rates will be high.

A mortgage is a large loan, so try to apply for it jointly. You will be able to divide the burden of arranging a larger deposit. In addition, because your lender will peruse the income source of both of you, your chances of getting approval will be high.

4.  Whittle down your credit utilisation ratio

Your credit utilisation ratio is another important factor that can preclude you from securing lower interest rates. Ideally, a credit utilisation ratio should not be more than 30%. The lower, the better. This ratio reveals the balance you owe against your credit card limit. It also affects your credit rating as well. So, in order to obviate exorbitantly expensive deals, you should keep this ratio as low as possible.

The best way to keep this ratio low is to clear the balance within the grace period and before your credit card provider informs credit reference agencies of your balance.

5.  Avoid multiple inquiries

Regardless of the loan you need, you should always prevent yourself from applying for multiple applications. Bear in mind that each time an application is submitted, a hard inquiry is made. They are visible to other lenders, too, and each inquiry pulls credit points. Multiple inquiries will result in a mushrooming decline in your credit score.

Instead, you should try to obtain prequalifying letters from different lenders. They will help you know the estimated interest rates at which you will be charged. However, the actual rates are more likely to be higher than estimated rates as they are determined after a thorough check of your credit profile.

By obtaining prequalified letters, you will not lose your credit score. This is because lenders do not make hard inquiries. When no search footprints appear, your credit score remains intact.

To wrap up

It can be difficult to be sure about being approved for your loan, but there are specific ways that help increase your chances. For instance, you should keep your credit utilisation and debt-to-income ratio low. At the same time, you should arrange a bigger down payment as it reduces the size of your loan.

Avoid multiple inquiries. Instead, seek prequalified offers from lenders. Remember that your whole credit profile should be stellar if you want to increase your chances of loan approval.

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