9 ways to improve your credit score before applying for a personal loan

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You probably need good credit to qualify for low personal loan rates. Here are 9 ways to improve your credit score before you apply. (Shutterstock)

If you have no credit history, or a bad credit, you may have trouble qualifying for a personal loan without a co-signer. Even if you are self-approved, a lender can charge you fees and a high interest rate.

But the good news is that your credit score isn’t set in stone. There are several steps you can take to reinforce it if it’s not where you want it to be.

Believable makes it easy View your prequalified personal loan rates from different lenders in one place before officially applying for a loan.

9 ways to improve your credit score before applying for a personal loan

These nine strategies can help you improve your credit score before applying for one private loan. Which one is most suitable for you depends on your individual financial situation.

1. Pay all your bills on time

Your payment history is the number one factor that determines your credit score and accounts for 35% of your score. Paying off debt on time can add a positive payment history to your credit reports, which can improve your score.

On the other hand, being late in paying off your debts and other bills can seriously damage your credit rating. To minimize the risk of missing a payment, consider signing up for automatic payment or using a spreadsheet to keep track of your due dates.

2. Get a loan to pay your rent

Paying rent on time usually doesn’t improve your credit score because payments aren’t typically reported to the credit bureaus. However, you can use some third-party services to get credit for your rental payments.

To do this, you can sign up for a service that reports your rent payment history to the credit bureaus (for a fee). If you are eligible, the company you applied to will contact your landlord to confirm your rent payments.

3. Become an authorized user

If you have a family member with excellent credit, you should ask them to add you as an authorized user on one of their credit cards. You can get your own credit card, but the main account holder is the only person responsible for making the payment.

If the credit card issuer reports the main account holder’s credit history on your credit reports, it can improve your score. One potential downside, however, is that late payment from the main account holder could affect your credit score.

4. Get a secured credit card

A secured credit card is designed to help you build or restore credit. Unlike a traditional credit card, a security deposit is required up front, often equal to your credit limit.

When you use the card, the credit card issuer typically reports your monthly payments to the three main credit bureaus – Equifax, Experian, and TransUnion. Paying your credit card bill on time can improve your score. Your credit card issuer may increase your credit limit or even upgrade you to an unsecured credit card after you’ve made a certain number of consistent, timely payments.

5. Apply for a construction loan

A home savings loan is an installment loan that you can use to build up credit. It works differently than a Classic personal loan that you will not receive your loan funds in advance. Instead, the lender deposits a small amount into a blocked savings account, and you make fixed monthly payments to the lender for a period of time. At the end of the loan term, you will receive these funds.

As you make your payments, the lender reports them to the major credit bureaus. Making payments on time will help you build a positive credit history, which can help you qualify for a traditional personal loan in the future.

6. Find a co-signer

If you are having trouble qualifying yourself for a personal loan or you want a better chance of getting a loan low-interest personal loan, consider asking a family member or friend with good credit to become a co-signer. Before a person agrees to co-sign your loan, make sure they understand that if you cannot, they will be responsible for paying back the loan.

Making your monthly payments on time can improve your credit score. But late payments can seriously damage your (and your co-signer’s) credit rating.

Visit credible Compare personal loan rates from lenders who allow co-signers. Checking your rates will not hurt your credit score.

7. Monitor and dispute errors in your credit reports

If your credit reports list inaccurate negative information (such as a paid-out account being reported as overdue), it can negatively impact your credit score. Because of this, it’s a good idea to review your reports for errors at least once a year.

You can view your credit reports from all three major credit reporting agencies by visiting AnnualCreditReport.com. If you find an error, you can dispute it directly with any credit bureau that lists it on your credit report. Fixing the bug can increase your score.

8. Ask to increase your credit limit

Credit cards have credit limits, but you can ask for a credit limit increase over the phone or online. If you are approved for a higher credit limit, it could lower your credit utilization rate and increase your credit score.

A potential downside, however, is that some credit card companies will conduct a hard credit inquiry to determine your eligibility for a credit limit increase. As a result, your score could drop temporarily.

9. Pay off existing debts

Your outstanding debt makes up 30% of your credit score. Much like increasing your credit limit, paying off your debt can lower your credit utilization rate. Two strategies you can use Pay off debt faster increase your income and decrease your monthly expenses.

Another benefit of paying off your debt is that you can lower your debt-to-income (DTI) ratio, which is your monthly debt divided by your monthly gross income. Although your DTI ratio is not a factor in creditworthiness, lenders often consider it when you apply for a loan. The lower your DTI, the better your chances of approval.

When you’re ready to apply for a personal loan, Credible makes it easy for you Compare personal loan rates so you can find one that best suits your needs.

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