Obtaining Favorable Loans With Bad Credit

Your credit score (also known as FICO) is the most influential factor of your loan application approval. Even if you are an individual with poor credit, there are things you can do prior to applying for a personal loan to help yourself and your credit score/rating so that lenders will consider you a prime borrower.

Pay Down Balances
Since about 30% of your FICO score is determined by credit utilization ratio (your balances compared to your available limits). One of the fastest means for raising your credit score is to pay your balances down. Set small goals for yourself. Look to achieve a credit utilization of 50% on all your cards and then work down from there. But make sure you pay off your highest interest cards first. Remember, the lower you maintain your balances, the better your credit score is going to be.

Be Timely With Your Payments
Your payment history is also a key variable as to whether or not approval will be achieved. This deals with how your pay your bills...on time? in full?

A late payment is going to stay on your credit profile for seven years. However, as time goes by, the impact of this late payment on your credit score will gradually fade out -- that is as long as you continue to pay your bills on time every month.

In reality, after six months of a positive payment history, your credit score will slowly improve. And after one years time, you will witness an even greater rise.

Don't Open Any New Account of Credit
The number of times you apply for new types of credit makes up about 10% of your total credit score. Therefore, if you are considering applying for a personal loan in the near future, do not apply for a credit card. You don't want lenders to think you are going on some sort of credit bender.

Obtain a Copy of Your Credit Report
Before applying for an unsecured personal loan, it is a very good idea to get a copy of your credit report. The U.S. Public Interest Research Groups reported that over 75% of credit reports have at least one error, some critical enough to equate to a loan denial.

Basic mistakes and errors like misspelled names and/or addresses can be fixed over the phone or the Internet. However, there are going to be issues that are going to be more difficult for your to fix...like accounts that have been closed being reported as opened, or even worse, accounts that have been opened fraudulently in your name. For resolving these types of difficult errors, you'll want to credit a paper trail by sending a certified letter with return receipt to the creditor as well as the bureau that is reporting the info. By law, the bureaus has 45 days to review your claim upon receipt.