What Should You Do Before Applying for a Loan or Credit Card?

Thinking about applying for a loan or credit card?

Before you hit that application button, it can be worth taking some time to look at your credit first. Lenders may use information from your credit reports and credit scores, along with income and other factors, when deciding whether to approve you and what terms to offer.

Preparing before you apply may help you avoid surprises and put yourself in a better position when seeking financing.

1. Review Your Credit Reports

Start by reviewing your credit reports. Look at the accounts being reported, balances, payment history, inquiries, collections, and other information.

Don't assume everything being reported is correct just because it appears on a credit report. If you find information that you believe is inaccurate or doesn't belong to you, investigate it and determine whether it should be disputed.

2. Pay Attention to Your Credit Card Balances

Your balances compared with your available credit can affect credit scoring. This is commonly called credit utilization.

For example, a $4,500 balance on a card with a $5,000 limit represents 90% utilization on that card.

If possible, reducing credit card balances before applying for new financing may improve the utilization portion of your credit profile.

3. Make Sure Your Accounts Are Current

Payment history can be an important part of your credit scores.

Before applying for financing, review your accounts and make sure you aren't overlooking a payment. A payment reported 30, 60, or 90 days late can potentially have a significant effect on your credit profile.

4. Avoid Applying Everywhere at Once

Getting denied by one lender can make it tempting to immediately apply somewhere else—and then somewhere else.

Be careful.

Applications for credit can result in hard inquiries, and opening several new accounts can also change other aspects of your credit profile.

Instead of submitting applications everywhere, understand your credit situation and look for financing that fits your qualifications.

5. Know What You're Applying For

A credit card, auto loan, mortgage, personal loan, and business financing can have very different qualification requirements.

A credit score by itself doesn't guarantee approval.

Lenders may consider your income, existing debt, payment obligations, credit history, collateral, and other information depending on the type of financing.

Knowing what you're applying for can help you prepare for the lender's requirements.

6. Don't Make Major Credit Changes Without Thinking Them Through

Right before seeking financing may not be the best time to start closing old credit cards, opening several new accounts, or making other major changes without understanding how they could affect your credit profile.

If you're preparing for an important purchase such as a home or vehicle, stability can matter.

7. Give Yourself Time to Prepare

Don't wait until you're sitting at the dealership or filling out a loan application to discover what's on your credit.

Reviewing your credit ahead of time gives you an opportunity to address potential problems, reduce balances, correct inaccurate information, and understand your financial position before a lender makes the decision for you.

Want to Know If Your Credit Is Ready for Funding?

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