Personal Loan Insider Secrets to Help Get Approved

Personal loans can be helpful when you need money. But you might be wondering, how can I improve my chances of getting a personal loan?

A good credit score matters but there’s more that goes on behind the scenes when lenders review personal loan applications. Before applying for a personal loan for debt consolidation or any other reason, consider these insider secrets and how you can use them to your advantage.

1. Small credit score differences can add up to big savings

Credit scores play an important part in personal loan approvals. A higher credit score can make it easier to get approved if a lender is confident that you’ll be able to repay what you borrow.

Knowing what range your credit score lands in can make a significant difference in what you pay for a loan. For example, here’s how FICO credit scores are graded:

Exceptional credit: 800 to 850
Very good credit: 740 to 799
Good credit: 670 to 739
Fair credit: 580 to 669
Very poor credit: 300 to 579

If you are teetering between two credit score ranges, improving your score by a few points could result in better loan terms.

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For example, say you want to get a $25,000 personal loan for home repairs and you have a 670 FICO score. Based on that score, you qualify for a five-year loan at 23.4%. You’d pay $17,660 in interest over the life of the loan.

Now, assume you’re able to bring your score up to 720. A 50-point increase in your score reduces your APR to 11.8%, saving you just over $9,400 in interest. That’s a great incentive to get your credit in the best shape possible before applying for a personal loan.

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2. It’s not all about your credit scores

Credit scores certainly matter for personal loan approvals but they aren’t the only thing lenders can consider. After all, your credit score and credit history are not the same thing.

Credit history refers to your overall track record of using credit and debt. That includes things like:

Payment history and how often you pay on time vs. paying late
Credit utilization and how much of a balance you typically carry on credit cards
How often you apply for new credit
Types of credit you’re using
How long you’ve been using credit

Additionally, lenders can look at your income and how much of it goes toward debt repayment each month or debt-to-income (DTI) ratio. The less money you have going to debt each month, the less risky you may appear to lenders.

Paying down a chunk of your existing debt can reduce your DTI, though whether that’s realistic may depend on how much cash you have. You could, however, use a windfall like your tax refund to wipe out some of your debt.

You can also focus on improving your credit history by disputing credit score errors. You can check your credit reports for free and if you spot an error, you can dispute it with the credit bureau that’s reporting the information. By law, credit bureaus have to remove or update inaccurate information when they find it, which could boost your score by a few points.

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3. Personal factors can influence approval

Some lenders may approve personal loans using personal information. Instead of focusing solely on your finances, personal loan lenders can also factor in things like:

Age
Employment status
What you plan to use a personal loan for

Some of these things can be difficult to get around, since unlike a credit score, there’s nothing you can do to change your age.

For instance, it may be harder to get approved for a personal loan if you’re a college student with limited credit history. One solution is to consider asking someone to cosign on the loan for you. If your cosigner has good credit that could make it easier to get approved.

Getting prequalified or preapproved for a personal loan could be a smart move if you’re worried about your age, employment history or plans for the loan funds being an issue. This can tell you how likely you are to be approved for a loan and at what terms.

Keep in mind, however, that if prequalification or preapproval requires a hard credit check that can ding your score by a few points. And if the information you provide is reviewed by an automatic approval system, you could be denied automatically if something doesn’t match the system’s algorithm.

In that case, there’s one more thing you can try: appealing for reconsideration. This simply means asking a lender to take a second look at your application before denying you. It’s one more insider secret you could leverage to get approved for a personal loan when you need funds.

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Rebecca Lake

Rebecca Lake is a freelance writer specializing in personal finance, credit and debt. She’s a contributor to U.S. News and World Report, Forbes Advisor and The Balance and her work has appeared online at CreditCards.com, MyBankTracker, Money-Rates.com and dozens of other top publications.