When you don't have the greatest credit, it can seem difficult or even impossible to get the loan you need. And that, in turn, can make it difficult to get the home or the car you want, or to start a new business. Fortunately, you can take steps to increase the odds of getting approved, even if you don't have great credit.
Find a Guarantor or Co-Applicant
A co-applicant or guarantor is a person who can increase your odds of getting a loan by making the application with you. That person's credit score, income and financial history will be taken into account, so you won't have to rely solely on yours. A co-applicant or guarantor can really make the difference if your credit score is relatively low.
A co-applicant and a guarantor are not the same thing, though. A co-applicant will receive the money from the loan together with you. The loan will appear on the co-applicant's credit history, as well. A guarantor does not receive the money along with you. A guarantor is just there to help you get the loan. It's usually a lot more difficult to find a guarantor than it is to find a co-applicant. Try asking your friends and family if they would be willing to be a co-applicant with you.
Boost Your Income
Your debt-to-income ratio is one of the most important factors a lender considers when processing a loan application. This ratio is simply the debt you owe divided by your income. Lenders consider this ratio to be a good indication of your capacity to repay the loan in the long run. A low debt-to-income ratio means that you have a lot of disposable income, and can easily handle any unexpected difficulties. A high debt-to-income ratio means that any unexpected difficulty could make it difficult for you to make your payments.
To improve your debt-to-income ratio, you could always pay down your debt. That could take a while, though. Increasing your income could yield faster results. You could ask your boss for a raise, of course. You could take an additional job, too. However, that could be difficult to sustain for the long term. Freelance work might make for an easier supplement to your normal job's income, because that way you can work whatever hours are most convenient for you. If you have creative or technical skills, you could try selling your services on any of several freelance platforms dedicated to those services. You could also try selling products you make (or can buy wholesale) on an ecommerce platform.
Alternate Lenders
Banks are not the only lenders. They're not even necessarily the best lenders; they're just the biggest. In fact, because they receive so many applications, they have developed standardized approval processes to save time. This means strict eligibility requirements for credit score, income, debt and so forth. Other lenders, those who take a more individual approach to lending, might look on your application more favorably.
You could try online lenders. They are more likely to take your explanations for missed payments or defaults. There are also peer-to-peer lenders, who are just people with money, not financial institutions. Peer-to-peer lenders usually operate on platforms online, and their loan decisions are often based on different factors than those the banks use.
Use Collateral
If you can't get a normal loan, you could try putting up some of your property for security. Many lenders will lend to people with poor credit if they know they can receive something valuable enough to compensate them for the loan if you default. A mortgage loan, for instance, uses the equity in your home to secure your loan. Your car or other large, valuable property like a boat can also be used as security.
Lower Loan Amount
If you have applied for a loan before and been turned down, the reason might simply be because you asked for too much. Your income, debt and credit history might work for a smaller loan. It's certainly worth trying. See if you could make do with a smaller loan and fill out an application. You never know; it could work.
Raise Your Credit Score
Lenders see your credit score as an indication of how financially responsible you are. If you improve your credit score sufficiently, lenders may think you have become responsible enough to be worth trusting. Raising your credit score is not something you can do quickly, though. It could take years to raise your credit enough to make lenders see you as a good risk. To raise your credit score, you need to make all your credit card and bill payments on time. It's certainly worth starting the process, even if you want to try faster ways to get a loan.
Final Thoughts
You might not get the loan you're after; however, hard you try to improve your odds. If you do everything you can to look like a good risk, your odds get a lot better.
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