Here's Why You Might Struggle to Get a Personal Loan Today

These days, it's a pretty bad time to be borrowing money. The Federal Reserve has been implementing interest rate hikes in an effort to slow the pace of inflation. That's made borrowing more expensive across the board, whether in the form of auto loans, home equity loans, or personal loans.

But if you need money, whether to renovate your home, start a business, or furnish a newly rented apartment, you may be interested in taking out a personal loan, despite the fact that you could be looking at a higher borrowing rate than usual. 

The nice thing about personal loans is that they allow you to borrow money for any purpose. But a new report from the Federal Reserve reveals that banks are generally tightening their standards when it comes to lending money. And that means you might struggle to get approved for a personal loan unless you present yourself as a truly qualified borrower.

Increase your chances of success

Personal loans are unsecured, which means they're not tied to a specific asset. As such, lenders rely heavily on borrowers' creditworthiness when deciding whether to approve loan applications. 

Given that lenders are tightening their standards these days, if you want to increase your chances of getting approved for a personal loan, then it pays to work on raising your credit score if it could use a boost. 

Generally, you're in pretty good shape to get approved for a loan -- whether it's a personal loan or another type -- once your credit score gets into the mid-700s or above (the highest FICO credit score you can have is 850). And you might have a fairly good chance of getting approved with a score in the lower 700s, too. 

But if your score is stuck in the 600 range -- particularly the lower end of it -- then getting approved for a personal loan isn't a given. And so if that's the case, you may want to work on boosting your score. 

You can do so in a number of ways. First, pay all incoming bills on time, as that could help your payment history improve. Your payment history carries more weight than any other factor when determining your credit score. 

Secondly, if possible, pay down a chunk of credit card debt to bring your credit utilization ratio down. That's another big factor that's used to calculate your credit score.

Also, get a copy of your credit report and inspect it for errors. If you're listed as having delinquent accounts that are actually in good standing, that's the sort of mistake you'll want to get corrected. Doing so could bring your credit score up fairly quickly if the credit bureau that published your credit report got its information wrong.

Be careful when taking out a personal loan

If you come in with a strong credit score, there's a good chance you'll manage to get approved for a personal loan, even though lenders are getting stricter. But be careful when signing up for one of these loans.

Though they're often hailed as affordable, you might get stuck with a higher interest rate than expected due to today's general borrowing environment. And if you fall behind on your personal loan payments, your credit score could take a massive hit, making it extremely difficult, if not impossible, to borrow money the next time you need to in a pinch.