6 Tips to Boost Your Chances of Personal Loan Approval - NerdWallet (2024)

There’s no universal formula for getting approved for a personal loan. Requirements such as credit score and income vary by lender, and some online lenders consider nontraditional data, like free cash flow or education level.

But loan companies have one thing in common: They want to be paid back on time, which means they approve only borrowers who meet their requirements. Here are six tips to boost your chances of qualifying for a personal loan.

1. Clean up your credit

Your credit score is a major consideration on a personal loan application. The higher your score, the better your chance of approval.

Check your reports for errors. Common errors that may hurt your score include accounts incorrectly reported in your name, closed accounts reported as open and incorrect credit limits, according to the Consumer Financial Protection Bureau.

You can get your credit reports for free once a week at AnnualCreditReport.com. With evidence to support your claim, dispute any errors online, in writing or by phone.

Get on top of payments. If you’re not already, be vigilant about making on-time payments toward all your debts, paying more than the minimums when possible. This will benefit your payment history and credit utilization ratio, which is the percentage of your available credit that you’re using. Together, your payment history and the amount of debt you owe make up 65% of a FICO credit score.

Request a credit limit increase. Call the customer service numbers on the back of your credit cards and ask your creditors if you can get an increase without a hard credit check. You have a better chance if your income has risen since you acquired the card and you haven’t missed any payments.

2. Rebalance your debts and income

Loan applications ask for your annual income, and you can include money earned from part-time work. Consider increasing your income by starting a side hustle or working toward a raise at your full-time job.

Boosting your income and lowering your debt improves your debt-to-income ratio, the percentage of your monthly debt payments divided by monthly income. Not all lenders have strict DTI requirements, but a lower ratio shows that your current debt is under control and you can take on more.

3. Don’t ask for too much cash

Requesting more money than you need to reach your financial goal can be seen as risky by lenders and may make it harder to get approved.

A larger personal loan also squeezes your budget, as higher loan payments impact your ability to meet other financial obligations, such as student loans or mortgage payments. Use the calculator below to estimate your potential monthly payment on a personal loan based on your desired loan amount and repayment term.

Personal loan calculator

4. Consider a co-signer

If you have a fair or bad credit score (below 690), adding a co-signer with stronger credit and income can increase your chances of approval.

Lenders may be more inclined to approve a loan application with a co-signer, because it provides an additional person who is legally responsible for repaying the loan.

Make sure anyone you ask to co-sign a loan fully understands their obligations and the risks before agreeing.

5. Use collateral to secure the loan

You may have a better chance of loan approval if you apply for a secured loan. A secured loan requires you to pledge an asset that you own — typically a vehicle or savings account — as collateral that the lender can take if you don’t repay the loan as agreed.

Secured personal loans are less risky for lenders than unsecured loans, because they can use the pledged asset to recoup any losses. Not all lenders offer secured loans, but those that do may have less stringent requirements or charge lower interest rates for secured loans.

6. Find the right lender

Some lenders disclose their minimum credit score requirements, loan amounts and whether they offer options like co-signers.

If you meet a lender’s minimum qualifications and want to see estimated rates and terms, you can pre-qualify for a personal loan. Pre-qualifying usually triggers a soft credit pull, which does not impact your credit score.

Pre-qualify with multiple lenders to compare rates and terms. The best loan option has low interest costs and monthly payments that fit into your budget.