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What to Do Before You Apply for a Loan​

Applying for a loan can be nerve-wracking.  Any large amount of money can severely affect your future, from a new car to a new home, so it’s normal to be nervous.  Unfortunately, many people don’t plan when it comes to loans and end up with either incredibly high-interest rates or get turned down and take a hit on their credit.

These are the top things you should do before a loan and how each of them will affect the outcome of your application.

Build Your Credit Score

In North America, our credit scores follow us through most major decisions.  This score can decide if hopefuls can buy homes, affect peoples’ spouse’s scores if they get married, andinform how much credit we’re allowed to have on credit cards.  If you want to get a loan and receive it with a low amount of interest, you must pay attention to your credit score.  Work to pay off any debt, make payments on time, and avoid spending more than you can pay off.

Show Smart Spending Patterns

Good spending patterns are vital to prove that you’re worthy of good credit to continue with credit debt.  Unfortunately, many will get a credit card, keep up to date on payments, and then forget that credit utilization matters.  If you’re looking at homes for sale in Vancouver, and your credit history shows that you use your full credit amount every month and pay only the minimum amount: it’s not going to look good for you.  Try not to use more than thirty percent of your credit card’s limit, and pay off the full amount every month.

Attempt to Create Savings

If you can save money, you can offset some of the money you’ll have to borrow.  This is especially important if you have a poor credit score or consider higher interest rates.  Saving money and not spending it can also prove that you’re a worthy lendee and should be approved for the loan.

Avoid Large Life Changes

Although you may feel inspired to make many large changes in your life at once so that you can start from a fresh slate, this can be a poor choice. You are taking out too many loans, getting new cars while you purchase your home, or getting married right before buying a property can all affect your credit score.  Look at how each change could affect the loan you want to get and consider completing it before you try to make any other changes.

Lay Out A Five to Ten Year Plan for Yourself

Plan before you take out a loan.  If this is a large loan, consider how it will affect your life for the next five to ten years, and think about what else may change your life in that time. For example, are you planning on having children?  Do you want to make a career change eventually?  Do you want to go back to school?  These can influence how much money you can spend and how easy it will be to pay off the loan.