4 Factors That Can Affect Loan Approval Chances

Every lender has a different approval process, but there are some common denominators that all lenders look for from loan applicants. It may be smart to familiarize yourself with these before applying for traditional bank loans or online loans. Knowing what lenders are looking for could help you improve your chances of getting approved. In this article, we’ve listed four common factors that can determine whether you’ll get approved.

1. Your personal credit score

Lenders will review your personal credit score when considering you for a loan. The FICO scoring model is one of the most popular systems lenders use. Your FICO credit score ranges from 300 to 850. Higher scores are preferred, but there are several online lenders that will approve applicants with poor credit. Prospective borrowers can improve their credit score by paying down other outstanding debt before applying for a new loan.   

2. Your debt-to-income ratio (DTI)

One of the variables used to calculate personal credit scores is amounts owed. That’s the existing amount of credit card and loan debt that an applicant has when they submit their application. Lenders take that amount and divide it by the applicant’s gross monthly income. The result is called the debt-to-income ratio (DTI). Some lenders will require a low debt-to-income ratio to approve you for a loan, while others are more lenient.

3. Your employment history

Consistency of income is important because it shows stability. This is relevant to the lender because people who’ve been employed at the same place for a long period of time tend to be at lower risk than those who jump from job to job. This is something that the lender will look at during the approval process. They may want to know how much you make, where you’re making it, and how long you’ve had this source of income. Be prepared to answer those questions.  

4. Your recent credit history

There are a lot of banks and financial institutions that offer traditional loans and online loans. Applications, whether approved or denied, will show up on an individual’s credit report. Too many loan applications can look risky to a potential lender. So, try to avoid applying for too many accounts at once. It’s also an advantage to have a good credit mix of accounts, such as loans and credit cards.    

The bottom line

Banks and online lenders don’t approve borrowers for loans without reviewing their applications first. Some common factors they’ll consider are your personal credit score, your debt-to-income ratio, your employment history, and your recent credit history. Consider all these factors when looking for a loan to ensure you know what to expect during the application process.