How Do I Qualify for a Loan?
Written by: Rebecca Game
Loans are the single most common source of funding, whether for
purchasing a home, financing a business, paying off debt, or
financing a college education. Before approaching a lender to
see if you qualify for a loan, whether your credit scores are
ideal or very poor, it's a good idea to understand as much as
you can about the factors that a lender will take into
consideration when evaluating your situation and your position
as a borrower. Qualifying for a loan can be much easier when you
have and understand all of these factors.
To qualify for a loan, a bank or other lender will examine a few
key points about you.
1. Ability to repay the loan.
First and foremost, when qualifying for a loan, a lender needs
to be reassured that you have the ability to repay the money
that is borrowed, and that you are trustworthy enough to make
your payments. Lenders want to see your cash flow and if
possible, a secondary resource, such as collateral. Your credit
scores help them determine if you've paid off credit cards and
other loans. Lenders check your credit scores to see if you've
made your payments on time, and to see if you've defaulted any
creditors. If you're applying for a business loan, lenders like
to see a business that's been in existence for a long time, and
that it's been profitable for a long time. Qualifying for a
personal loan or a mortgage is much the same. If you have a
credit history that shows that you've paid your other bills, and
you have a steady flow of income coming into your budget,
chances are good that the loan will be approved. If your credit
is questionable, however, it may be of benefit to seek a lender
specializing in loans for individuals with poor credit.
2. Credit history.
As mentioned, the first thing that a lender will do to determine
if an individual, couple, or business can qualify for a loan is
to pull their credit report, usually from Experian, Equifax,
Transunion, or another smaller credit bureau. Therefore, before
you approach a lender, or even start preparing to request a loan
and see if you qualify for a loan, make sure your credit scores
are as high as possible. Get a copy of your credit report from
each of these three credit bureaus. Review each item on the
report carefully, and report any errors that you find. For
example, if you've gone through a divorce and a loan was placed
in your spouse's name, request that that item be removed from
your report to not reflect the current history of that
particular loan. Watch for items that may not be yours, too.
Identity theft and identity errors are common, and it's
important to protect your credit and remove anything that simply
does not belong on your report. Once a dispute is filed, the
creditor has 30 days to respond to the credit bureau. If no
response is received, the item must be removed from your credit
report, and your credit scores will increase. Check your name,
social security number, and address at the top of each report to
make sure they are correct. Contact each individual credit
bureau with questions and disputes before determining if you
qualify for a loan.
Qualifying for a loan can also be a matter of being honest,
regardless of credit scores. If your credit scores dropped due
to a divorce, medical crisis, or job loss, and those issues have
been resolved, you can still easily qualify for a loan by
explaining these events to the lender. Bad things happen to good
people, so be honest and explain and detail these issues in
writing, and submit that information along with your loan
application to determine if you qualify for a loan.
Lenders often ask for equity when qualifying for a loan,
especially if the loan amount is large, such as to construct a
new building for business or purchase a home. In these
instances, the building or home itself can be the collateral,
and equity is built by offering the lender a down payment. To
qualify for a loan, be prepared to offer equity, either with a
down payment or some type of collateral.
If your credit scores are high, and if you've never had any
financial difficulties, qualifying for a loan should be a fairly
simple process. If you've had financial challenges or extreme
financial difficulties in the past, be prepared to offer
explanation of these problems to the lender when finding out if
you qualify for a loan. Seek out a lender specializing in poor
credit loans if your credit scores are too low for a
conventional loan. You may find that by seeking these lenders,
you'll easily qualify for a loan.
Regardless of your credit scores, always make sure that the loan
payments fit into your current personal or business budget
easily, and do this before determining if you qualify for a
loan. Not making payments on time can result in adverse marks on
your credit reports, reducing your credit scores and making it
difficult to obtain future loans.
About the author:
Rebecca Game is the founder of Digital Women ®, an online
community for women in business. A 30 year entrepreneur and
dedicated to helping other women find small business loans.
Visit her site for Women:
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