Will You Qualify For That Loan?
When you’re desperate for money, it can be tempting to apply for every loan you find during your Google search for funding. Unfortunately, most lenders aren’t going to approve the applications of those whose credit reports include a lot of recent credit inquiries. And make no mistake: those inquiries show up very quickly. So, really, applying for every loan you find--as tempting as it might be--is the worst thing you can do.
A better approach is to take some time to learn about each loan that seems promising. Go beyond the advertised interest rate and credit limit. Make sure, before you apply, that you will actually qualify. Most lenders (at least, those who are reputable) will make finding out line of credit requirements easy for potential applicants learn. They will list them right in the fine print of their websites and lending information.
Typically, the basic requirements are these:
United States citizenship
Steady employment (or alternative reliable income)
A valid checking account at an accredited banking institution
A specific minimum credit score
A clean credit report (not perfect, but clean--there’s a difference)
While the US citizenship and a specific minimum credit score are self-explanatory, there are often other details about these requirements that aren’t always stated explicitly.
Steady Employment (or Alternative Reliable Income)
You will need to prove that you have a job. For most people this is easy enough--they can simply send in a few recent pay stubs or provide a W-2. If you are unemployed, you’ll need to show that you’re receiving unemployment payments or reliable payment from somewhere. Lenders need to see that you have money coming in because that proves you’ll be able to pay them back. This proof can be in the form of bank records, copies of checks, etc. It is perfectly okay to call the lender and ask what documentation they need to prove your income.
For a self-employed individual or freelancer, this is a little more complicated. Often you’ll be required to submit bank records for your personal bank account and, if applicable, your business bank account. Lenders also often request to see your most recent tax return so they can get a feel for what you earn annually.
IMPORTANT: The magic number here is usually 3. The lender will want you to prove at least three months of reliable income, so the newly employed often have to provide backup documentation proving their financial stability.
A Valid Checking Account at an Accredited Banking Institution
Sorry readers but PayPal does not qualify as a “bank account.” The lender wants to make sure that you have an account at an accredited banking institution like a national bank or a local credit union. The magic word here is “FDIC.” If your banking institution is insured by the FDIC, the lender will likely trust them.
Like with employment, the magic number here is usually 30. Lenders want to see a checking account that has been opened and that has maintained a positive balance for at least 30 days. If you’ve been having trouble getting a bank account because of bad credit or problems at another institution, look for banks and credit unions that work with “high risk” applicants or that offer “second chance” accounts.
A Clean Credit Report
If you’re applying for a large amount, like for a mortgage, your credit report will have to be perfect. For short term and installment loans, however, most lenders understand that your report will likely contain a few mistakes or blemishes like missed payments or a collections account or two. What you need to avoid, however, are judgments and liens on your income. These carry a lot more weight than the errant missed payment or “sent to collections” account. Do what you can to work things out with debt collectors, the IRS, etc so that you don’t actually ever get sued.
Remember, as we’ve already stated: it is absolutely okay to call up a potential lender to make sure you meet current requirements before you submit an application. A good way to keep them from pulling your credit is to pull your report yourself and then refer to it throughout the conversation.
It might take some time, but eventually you’ll be able to find a loan that works for you without tanking your credit in the process!