Personal - Personal Loan After
Bankruptcy: Can You Qualify?
If you want to qualify for a personal loan after bankruptcy there are
four key areas that will determine how successful you are:
1) Your credit score
2) Collateral
3) Existing debt
4) Time
Let’s look at each factor in more detail and how they can help you
increase your chances of qualifying for a personal loan after
bankruptcy:
1) Credit score: In order to qualify for a personal loan after
bankruptcy you will need to meet the lender’s minimum credit score
criteria, provided the lender extends loans to individuals with a recent
bankruptcy. You’ll want to find out before applying for a loan: Simply
ask the lender if they consider applicants with a bankruptcy on their
credit report.
Let’s suppose the lender does. How can you increase your credit score
enough to qualify for a personal loan after bankruptcy?
The first step is to order copies of your credit reports from the
three major credit reporting agencies (Experian, Equifax, and Trans
Union). Next, make sure any inaccurate or obsolete negative information
on your credit reports is removed or updated. I go into detail on this
in After Bankruptcy Credit Solutions. I also explain how to legally add
positive lines of credit to your credit reports, which is a very
powerful way to increase your credit score – but I’ll save that for
another article.
2) Collateral: Another major factor in obtaining a personal loan
after bankruptcy is how much collateral you have. Why? Because if a
lender has collateral that they can go after (i.e., equity in your home)
should you default on the loan, that reduces their risk dramatically. So
if you can provide collateral to the lender, it can increase your
chances of qualifying for a personal loan after bankruptcy.
3) Existing debt: You don’t want to have too much debt when you apply
for a personal loan after bankruptcy. If you do, the lender may feel you
don’t have the capacity (enough income) to cover the loan payment,
because you have too many other monthly expenses to pay (i.e., credit
cards, auto payment, etc.) – as a result you could get turned for a
personal loan after bankruptcy.
On that note, find out if the lender has a minimum income
requirement, or debt-to-income ratio you need to meet. If they do, make
sure you meet their minimum requirement before you apply for the loan.
4) Time: It’s been said that “time heals all wounds” – well, when it
comes to obtaining a personal loan after bankruptcy this can certainly
be true if you’ve developed a positive payment history since your
bankruptcy.
When a lender is deciding whether or not to extend you a personal
loan after bankruptcy, your credit report will play a major role.
Generally speaking, if your credit report reflects a positive payment
history for at least two years since your bankruptcy, it will certainly
help.
We have looked at the four major factors that will determine whether
or not you qualify for a personal loan after bankruptcy: Your credit
score, collateral, existing debt, and time. To the extent you can
strengthen each one of these you increase your chances of being approved
for a personal loan after bankruptcy.
Even if you can’t qualify for a personal loan after bankruptcy
immediately, don’t be discouraged! Remember, time can heal all wounds
when it comes to qualifying for a personal loan after bankruptcy. Just
make sure to focus on increasing your credit score, pay your existing
bills on time, don’t take on too much debt, and build up your net worth.
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