Applying for a loan can be somewhat nerve-wracking if you’ve never done it before. Whether you’re hoping to find the funding you need for essential or emergency expenses, there are a few things you’ll want to consider before you start the process. Here are three great tips for first-time borrowers that will give them better chances of qualifying for the loan they need.
1. Check your credit score
One factor many lenders are interested in is your credit score (also known as your FICO Score). This is a number between 300 and 850 that quantifies your creditworthiness. For example, to qualify for a conventional mortgage, you may need a credit score of at least 620 or higher.
Checking your credit score can help you figure out what loans you can qualify for. You can do this by creating a free account with Experian. Some major credit cards also provide you with your FICO Score as a free service.
2. Calculate your debt-to-income ratio
The next thing a lender may ask for is a list of your income sources and reoccurring debts. They will then use this information to calculate what’s known as your debt to income (DTI) ratio.
Along with your FICO Score, lenders will use your DTI ratio to determine your ability to reliably make your payments every month. The higher your DTI, the greater the chances you might default and the less likely you’ll be approved. By calculating your DTI in advance, you’ll be able to narrow down your loan options to one with requirements that match your financial situation.
3. Look for loans with less strict credit score requirements
If you don’t have an established credit history yet, you may be wondering how to get a loan with no credit. Luckily, there are many loans that come with less strict credit score requirements. Lenders offering these loans will consider factors in addition to your credit score, like income and employment history, when deciding whether to approve you. This means you can still get a loan without credit.
Here are some no-credit loan options that may be available to you:
- Cash advances: Cash advances are short-term, small dollar loans that can get you quick funds to tide you over until your next payday. With these loans, you can typically receive a few hundred dollars, and can pay back the loan when you get your next paycheck.
- Title loans: Title loans are secured loans that let you use your car title as collateral to secure the loan. The lender will offer you a loan amount worth a percentage of your vehicle’s appraised value. You can keep driving your car as you repay the loan.
- Lines of credit: A line of credit is a flexible loan that lets you draw on funds as needed, up to your set credit limit. Then, you can repay this loan all at once or over time. You’ll only pay interest on the amount you borrow.
The bottom line
First-time borrowers looking for a loan have many options available. Check your credit score and debt-to-income ratio, and look for loans with less strict credit score requirements if you don’t have an established credit score yet. This will allow you to find the right loan for your needs so you can start covering expenses right away.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.