Getting approved for a loan in Canada can seem incredibly confusing and frustrating. Between navigating all the paperwork, understanding your credit score, and determining if you actually meet a lender’s eligibility requirements, the whole loan application process can make even the most financially responsible person feel unsure where to start.
Not being able to get approved for a loan that you need can end up severely impacting your ability to reach major life goals and plans.
That’s why it’s so important to make sure you set yourself up for success when applying for any kind of financing. Follow these 5 essential tips for getting approved for loans in Canada to help streamline the application process and get the funding you need, when you need it.
Tip #1: Check Your Credit Report and Score Thoroughly
One of the main factors lenders will evaluate when determining your eligibility for a loan in Canada is your credit score, which is calculated based on the information in your credit report. So before you apply for any type of loan, it’s critical that you check your latest credit report from both Equifax and TransUnion, Canada’s two main credit reporting bureaus.
Checking your credit report will allow you to:
- Identify any errors, omissions or duplicate entries that may be unfairly dragging down your score. You can dispute these immediately with the credit bureau.
- Review all the specific factors currently impacting your score – missed or late payments, high credit balances and limits, inquiries and more – so you know exactly where you stand and what you may need to improve before applying.
- Obtain your free annual copy of your credit report that you’re entitled to from each credit bureau per year.
- See your exact credit score, which you can check regularly for free through online portals like Borrowell.
In most cases, you’ll need a minimum credit score of at least 680 to get approved for a loan in Canada, although the requirements can vary greatly between lenders. Generally, the higher your score, the better your chances of being approved.
Tip #2: Lower Your Debt-to-Income Ratio
Lenders want to see that your total monthly debt payments account for no more than 40% of your gross monthly income. This debt-to-income ratio factors in your housing costs, existing loan payments, minimum credit card payments, child support, and any other debts you pay each month.
Before applying for a loan in Canada, take proactive steps to pay down high-interest debts like credit cards or lines of credit, and try to lower your balances on any maxed out cards. This can go a long way towards showing lenders that you have the ability to responsibly manage any additional debt you take on.
Tip #3: Build Your Credit History
For borrowers who are just starting out and have limited existing credit, options like opening a secured credit card or becoming an authorized user on someone else’s credit card can help you start establishing a positive credit history. Using any new credit responsibly by keeping your spending below 30% of the limit and making payments in full and on time each month will help build your profile and secure a loan in Canada.
Tip #4: Gather Necessary Documentation
When getting ready to apply for a loan in Canada, make sure you have all the documentation ready that lenders typically require to help speed up the processing and approval of your application. This includes recent pay stubs, tax returns, proof of legal status like a copy of your driver’s license or PR card, and account statements showing your assets. Being prepared with all the paperwork the lender needs upfront can increase your chances of getting approved quickly.
Tip #5: Consider Adding a Cosigner for a loan in Canada
If your personal credit score and history needs a boost, consider asking a financially responsible family member or trusted friend with an established credit profile and high credit score to co-sign the loan application with you. Their solid credit essentially vouches for you and will help you towards securing a loan in Canada. Just be certain to make every payment on time – a single missed payment affects their credit record too!
Following these pro tips can set you on the path to getting approved for the financing you need. But every situation is unique. For personalized guidance tailored to your specific credit profile and goals, the experienced loan specialists at Get Approved Canada have the insider knowledge and resources to ensure your application gets the green light. Don’t leave your approval chances to chance – contact Get Approved Canada today for proven strategies to maximize your odds so you can get the loan in Canada you need. Our dedicated experts are ready to help you succeed!