How to Increase Your Chances of Getting Approved for New Credit

What Determines if You'll Be Approved for New Credit?

With good credit and a steady income, you may have an easy time qualifying for a new credit account. Every lender uses its own criteria to approve or deny credit applications, however. If you know what they're looking for in an applicant, you can improve your chances of getting approved.

Credit Score

Lenders use credit scores to better understand the likelihood that an account holder will miss a loan payment. A higher credit score can make approval more likely because it indicates to lenders that you're a less risky borrower. Lenders typically have minimum credit score requirements, but higher scores can improve your approval odds and lead to better offers.

Lenders can choose from different types of credit scores, and you won't necessarily know which score a lender will use to make a decision. However, you can take actions to improve all your scores at once.

Employment and Income

Lenders also consider whether your income is enough to cover the monthly payment on your new credit account. Many borrowers' incomes come from a job or business, which is why you might be asked about your current job and employment history. But income can also come from other sources, such as a pension, disability benefits or Social Security benefits.

Debt Payments

Lenders will often consider your income within the context of your requested loan or line of credit, and your other debt payments. Lenders can calculate your debt-to-income ratio (DTI), which compares your monthly income and required monthly debt payments. Or, if you don't have a mortgage, they might alternatively consider your monthly rent.

Collateral

Secured loans, such as an auto loan or mortgage, require you to offer the lender collateral for the loan. The lender can limit its losses by taking possession of the collateral if you stop making loan payments.

Unsecured loans, including many credit cards and personal loans, don't require collateral. As a result, they may have higher interest rates, lower loan limits and more stringent credit and income requirements.

History With the Lender

Although lenders can gather a lot of information about you from your credit reports, income verification tools and other databases, they can also use internal data to inform their decisions. Sometimes, this can work in your favor. For example, if you've done business with a bank or credit union for a long time, they might be more likely to approve you for a loan or credit card.

The Lender's Business Policies

Lenders also might have policies in place to help protect them from losing money or to further other business goals. For instance, if you've recently applied for or opened other credit cards, your application might get denied regardless of your credit and income.

What to Do Before Applying for New Credit

You might be able to improve your chances of getting approved or receiving a better offer if you can focus on the factors above before applying. Here are a few steps you can take:

• Check your credit. It can be important to know where you stand, so check your credit report and a credit score before applying. Experian offers access to your credit report and FICO^® Score^☉ for free, and shows you the top factors affecting your score. If you don't have a good or excellent credit score, use these factors to help guide your actions as you work to improve your credit.
• Pay off debts. You may be able to lower your DTI by paying off a loan or credit card. Paying down credit card balances can also quickly improve your credit scores and save you money on interest payments, making it a win-win-win.
• Increase your income. A higher income can also lower your DTI. Although you might not be able to get a new job or raise right away, some side gigs don't require a lot of experience and can be fairly flexible. Also, review the application for what you can use as income. In some cases, you might be allowed to include investment income, public assistance, alimony, an allowance, financial aid, a household member's income and other income sources.
• Search for insights about lenders' policies. Creditors don't reveal all the details about their business policies, but you can sometimes find information from blogs and forums. For example, Chase tends to deny applications for new consumer credit cards if the applicant opened five credit cards (including non-Chase cards) during the previous 24 months. The policy is so well-known that credit card enthusiasts have dubbed it the 5/24 rule.
• Take the opportunity to shop around. Creditors may focus on a particular type of consumer, and they often have varying minimum credit scores and income requirements. As a result, you may be able to increase your chances of getting approved by looking for options from different lenders and card issuers.
• Try to get preapproved. Some creditors have a preapproval option that only requires a soft credit pull and won't impact your credit score. Getting preapproved can be a good way to confirm whether you'll likely get approved and to review estimated credit offers before submitting a complete application.

How to Improve Your Credit

Although many factors will affect your eligibility and offers, your credit history and credit score are often crucial to the decision. It can often take time to establish and build your credit, or rebuild it after setbacks, but there are numerous benefits to having good credit. Here are a few things you can focus on to set yourself up for success, including several tips that might quickly increase your credit scores.

Make Payments on Time

Your payment history is the most important factor in determining your credit score. Make it a goal to make all your minimum payments on time to improve your credit. If you think you might miss a payment, contact the creditor immediately to see if any hardship options are available.

Bring Past-Due Accounts Current

If you've missed bill payments, bringing your accounts current can also help your credit. The late payments won't be removed from your credit reports for seven years, but their impact will diminish over time. Additionally, you'll now have the chance to show creditors that you can manage your accounts and make your payments on time going forward.

When creditors have already closed your account and sent it to collections, settling or paying off the collection accounts also might improve some of your credit scores.

Lower Your Credit Utilization Ratio

The portion of your revolving accounts' available credit that you're using can also be a major scoring factor. In other words, a high credit card balance might be hurting your credit scores.

Paying down credit card balances isn't always easy, but it might quickly improve your credit scores if a high utilization rate is hurting your credit. You also might be able to lower your credit utilization rate by increasing credit limits, using a debt consolidation loan or opening new credit lines.

Review Your Credit Reports for Errors

Your credit reports can hold a lot of information, and you'll want to review them closely to see what's negatively affecting your credit score. If you find information you believe was reported in error, you have the right to dispute it for free by contacting the company that reported the information or the appropriate credit bureau. Some errors, such as an account you didn't open appearing in your credit report, can also be a sign of identity theft and fraud, which may require additional action.

Boost Your Credit Score

Experian Boost^®ø is a free feature that you can use to add new information to your Experian credit report. For example, you may be able to add up to 24 months' worth of on-time rent, utility and select streaming service payments to your credit history to increase your credit scores. You can choose which bills to add and remove them later if you'd prefer.

Monitor Your Credit for Free

The same free Experian account will give you access to your credit report, a FICO^® Score and Experian Boost—along with other helpful features, such as credit report and score monitoring. You can then track your credit to see when your chances of getting approved might increase. Additionally, use your account to get credit card and loan offers from Experian's partners based on your unique credit profile and a soft credit pull.