Is the world of credit a completely new experience for you? Do you need credit but have no idea where to start or how it works? We’ve got you covered. Understanding what to expect no matter what type of credit you need is the first step you should take. So whether you’re looking to get a credit card, car loan, personal loan, student loan or a mortgage, understanding the approval process and what affect your ability to get the credit you need is extremely important.
The first thing that’s going to impact your ability to get a loan of any type is your credit score. Your credit score is specific to you and depends on several things you’ve done throughout your life. Some factors that affect your credit score are:
If your credit score is high you’ll be able to get loans or credit cards more easily and with lower interest rates. The lower your credit score the more difficult it is to get credit at all and the higher your interest rates are going to be. When you apply for a credit card, loan or mortgage the company that you apply through is going to check your credit history. They do this to see what your credit score is and then based on your credit score they will decide if they want to approve you. They also decide what they’re going to require in exchange. If your score is too low (or you have no score) you may be required to:
Check out this video to see how your credit score gets calculated.
A credit card is actually one of the easiest and fastest types of credit that you can get. One of the ways that you can apply is to fill out the applications that come in the mail. You can also go online and check out the website of any company you want a credit card from and fill out their application. A mailed application could take a couple weeks or more to be reviewed and then approved. Online, you’ll generally find out immediately. If you get approved you’ll get a card within a couple weeks. If you’re not, you’ll get a nice rejection letter that explains why.
If you need any type of loan (student, personal, car, etc.) your best option is generally to apply with your financial institution, but you don’t have to. Many companies offer different types of loans online (you can visit our application page for more on that). You’ll often be able to find out more information about what each lender requires in the way of credit scores and other qualifications before you apply, so you’ll have a better idea of whether you’ll be approved right from the start. Whether you go with a more traditional lender institution or a private online lender you always be able to call them and discuss your options.
Getting pre-approval is a great option if you’re uncertain about whether you’ll be approved at all. When you apply for the loan (after the pre-approval process or without one) your lender will want to verify your credit score, this will cause your credit score to take a small hit. This is why it’s not a good idea to continue to apply for loans when you’re constantly getting rejected, your credit score will be negatively affect.
A mortgage is going to be a very big deal for you, especially if you’re buying your first house. Getting pre-approved is going to make the process easier and it will help you understand what you can afford. Depending on your credit, your job, your income and how much debt you currently have, you may be able to get more money, which means you can afford a more expensive home. Pre-approval will let you know just how much money you can get and what your conditions will likely be. When you actually apply for your mortgage you’ll be approved, denied, suspended or approved with conditions.
If you’re approved you’ll be able to sign for your new house immediately and if you’re denied you’ll get a letter detailing the reasons why. If you’re suspended you need to submit more information to the mortgage company so they can re-evaluate. If you’re approved with conditions then you need to take further action before they will give you the full approval.
Your credit and your ability to get approved will be affected by a number of different things, but the good news is you can always work on your credit score to improve it. Getting that credit card, loan or mortgage may require a little more from you if your credit isn’t so great, but as long as you continue making payments on time and use your credit responsibly you’ll continue to improve your credit and work towards building a better financial future for yourself.
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Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.
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