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Personal Loan After Bankruptcy: Can You Qualify?
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By R. Lawrence Anderson
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If you want to qualify for a personal loan after bankruptcythere are four key areas that will determine how successful youare:
1) Your credit score 2) Collateral 3) Existing debt 4) Time
Let's look at each factor in more detail and how they can helpyou increase your chance of qualifying for a personal loan afterbankruptcy:
1) Credit score: In order to qualify for a personal loan afterbankruptcy you will need to meet the lender's minimum creditscore criteria, provided the lender extends loans to individualswith a recent bankruptcy. You'll want to find out beforeapplying for a loan: Simply ask the lender if they considerapplicants with a bankruptcy on their credit report.
Let's suppose the lender does. How can you increase your creditscore enough to qualify for a personal loan after bankruptcy?
The first step is to order copies of your credit reports fromthe three major credit reporting agencies (Experian, Equifax,and Trans Union). Next, make sure any inaccurate or obsoletenegative information on your credit reports is removed orupdated. I go into detail on this in After Bankruptcy CreditSolutions. I also explain how to legally add positive lines ofcredit to your credit reports, which is a very powerful way toincrease your credit score - but I'll save that for anotherarticle.
2) Collateral: Another major factor in obtaining a personal loanafter bankruptcy is how much collateral you have. Why? Becauseif a lender has collateral that they can go after (i.e., equityin your home) should you default on the loan, that reduces theirrisk dramatically. So if you can provide collateral to thelender, it can increase your chances of qualifying for apersonal loan after bankruptcy.
3) Existing debt: You don't want to have too much debt when youapply for a personal loan after bankruptcy. If you do, thelender may feel you don't have the capacity (enough income) tocover the loan payment, because you have too many other monthlyexpenses to pay (i.e., credit cards, auto payment, etc.) - as aresult you could get turned for a personal loan after bankruptcy.
On that note, find out if the lender has a minimum incomerequirement, or debt-to-income ratio you need to meet. If theydo, make sure you meet their minimum requirement before youapply 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 thiscan certainly be true if you've developed a positive paymenthistory since your bankruptcy.
When a lender is deciding whether or not to extend you apersonal loan after bankruptcy, your credit report will play amajor role. Generally speaking, if your credit report reflects apositive payment history for at least two years since yourbankruptcy, it will certainly help.
We have looked at the four major factors that will determinewhether or not you qualify for a personal loan after bankruptcy:Your credit score, collateral, existing debt, and time. To theextent you can strengthen each one of these you increase yourchances of being approved for a personal loan after bankruptcy.
Even if you can't qualify for a personal loan after bankruptcyimmediately, don't be discouraged! Remember, time can heal allwounds when it comes to qualifying for a personal loan afterbankruptcy. Just make sure to focus on increasing your creditscore, pay your existing bills on time, don't take on too muchdebt, and build up your net worth.
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