3 Ways to Increase Your Chances of Getting a Great Loan

• Tweet

• Tweet

Not everyone understands the concept of “good” and “bad” loans. It’s easy to go through life thinking that any loan that gives you the money you want is a good loan. However, this couldn’t be further from the truth. Loans cost money in the form of interest and fees. Interest is the extra money that a lender charges you, to cover for the risk they you won’t pay back all or part of your loan. Fees are just extra money that you have to pay, sometimes for reasons that don’t make a lot of sense. You want to find a loan that has the lowest possible interest and fees, but you won’t have many options if you don’t have good personal credit.

New online lenders like Avant make it easy to understand what you’ll pay for a loan before you actually apply (click through for more on Avant personal loans). This isn’t always the case. Understanding your own personal credit will help you predict how good a loan will be before you even ask for it. Here are three ways to increase your chances of getting a quality personal loan.

• Pay Your Bills on Time. Every time you pay a bill late, notification is sent to three different credit reporting agencies which each separate records of your personal credit history. When you miss simple payments, this signals them that you may not be able to handle any more borrowed money, at least without missing even more payments. They adjust your credit score (in a negative direction). You new lower credit score is a sign to lenders everywhere that you are not a person to lend money to. If they decide to give you money, they’ll charge you an arm and a leg for it.
• Don’t Overuse Credit Cards. If you have too many credit cards (let’s say more than 15, though this isn’t a hard and fast rule), this will hurt your credit score. If you get new credit cards too frequently, this will hurt your credit score. If you use more than 30% of any on credit card’s credit limit, this will hurt your credit score. Credit reporting agencies give good credit scores to people who seem to use their credit wisely. They want to reward those who seem to have enough money on their own, without having to borrow it from credit card companies and other lenders. If you live beneath your means, with regard to credit, you’ll be more likely to have a high credit score and get better loan options.
• Don’t Request Loans Frequently. If you’re asking for money all the time, it makes it look like you are out of control in your personal finances. Ask for money only when you really need it, because each request causes your credit score to go lower for a couple of months.

If you understand the way these simple behaviors affect your personal credit, you’ll be able to change them for the better. This will improve your credit history, raise your credit score, and give you access to better loans.