There are many reasons people need a loan.  However it is not something that is dealt with on a daily basis so people often don’t have the information needed to make informative decisions regarding a loan company.  Whether a loan is needed for the purchase of a home, home improvements, a car, school or getting a business started banks and credit unions are loan companies willing to lend to those who show credit worthiness.

Loan companies must determine if the risk is worth the reward in lending money.  Of course the risk is that a client may not be able to pay the loan back and the reward is the money they will earn on the interest paid.  How do loan companies determine a client’s risk?  It will help you in obtaining a loan to know what lenders are looking for.  Education is the key is making the loan process less difficult and you will be more likely to be approved and at a better rate.

The first bit of information that is crucial in getting a loan approved is your credit history which creditors determine with your credit rating.  It is imperative that you keep track of your credit by obtaining a copy of your history report a couple of times a year.  It is easier to change errors that have been submitted when they are recent.  It will also help keep you in track to improving your credit score if you are aware of what information is being reported.  Credit scores can be raised based on the timely fashion your payments are made.  Makes sure you are paying all bills before they are do and that you are not keeping overly high balances open on accounts. These are all ways to keep your credit score high and new loan interest rates low.

It is also important in obtaining a loan that you are aware of your current and future financial situation.  You will have to prove employment history and also your financial accounts.  Often time’s lenders will request information on investments, checking and savings information and outstanding debts.  This information will help lenders access your debt to income ratio.  This tells them a lot about your ability to pay a loan back.  For larger items such as homes and cars it is always wise to have a down payment to go along with the request for a loan.  This shows lenders that you are responsible a trustworthy.  Money in savings and a good credit score are two major factors in determining your interest rate, the amount of money it will cost you to borrow funds.

If you are new to the world of credit how do you work on obtaining a credit history?  This is often the tricky part of lending.  If you have not been allowed to establish credit history then how do you get credit?  The answer is simple, a co-signer.  This is a person, maybe a parent or relative that has an established credit history that backs your financial obligation by offering to pay the loan back if the loan is defaulted on.  Another way that you can work to establish history is by offering collateral.  Maybe you have equity established within a rental home that grandma and grandpa gave to you upon their passing.  You can use the equity as collateral to help improve your chances of gaining credit until you find yourself more established in the rat race of lending.