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If you have no credit history or if you bad credit score, you may find it difficult to qualify for a personal loan without a co-signer. Even if you are approved by yourself, a lender may charge you fees and a high interest rate.
But the good news is that your credit score isn’t set in stone. You can take several steps to boost it if it’s not where you want it.
Credible, it’s easy to view your prequalified personal loan rates from various lenders, all in one place, before formally 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 before applying for a loan. Personal loan. Which one is best for you will depend on your unique financial situation.
1. Pay all your bills on time
Your payment history is the most important factor that determines your credit score, accounting for 35% of your score. Paying off a debt on time can add a positive payment history to your credit reports, which can boost your score.
On the other hand, paying off your debt and other bills late can cause serious damage to your credit. To minimize your chances 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 your rent on time generally does not improve your credit score since payments are generally not reported to the credit bureaus. But you can use some third-party services to get credit for your rent payments.
You can do this by signing up for a service that reports your lease 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 lease payments.
3. Become an authorized user
If you have a family member with excellent credit, consider asking them to add you as an authorized user on one of their credit cards. You may receive your own credit card, but the primary account holder will be the only person responsible for payments.
If the credit card issuer reports the primary account holder’s credit history on your credit reports, it may improve your score. But a potential downside is that if the primary account holder makes a late payment, it could damage your credit.
4. Get a secure credit card
A secured credit card is designed to help you establish or restore your credit. Unlike a traditional credit card, it requires an initial security deposit, which is often equal to your credit limit.
When you use the card, the credit card issuer typically reports your monthly payments to the three major credit bureaus – Equifax, Experian and TransUnion. If you pay your credit card bill on time, it could improve your score. Your credit card issuer may increase your credit limit or even upgrade you to an unsecured credit card after making a number of regular, one-time payments.
5. Apply for a credit loan
A credit loan is an installment loan that you can use to build credit. It works differently from a classic personal loan in that you do not receive your loan funds up front. Instead, the lender will deposit a small amount into a locked savings account and you will make fixed monthly payments to the lender for a certain 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 helps 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 difficulty qualifying for a personal loan on your own or want a better chance of getting a low interest personal loan, consider asking a family member or friend with good credit to be a co-signer. Before someone agrees to co-sign your loan, make sure they know they will be responsible for repaying the loan if you can’t.
Making your monthly payments on time could boost your credit score. But late payments can cause significant damage to your (and your co-signer’s) credit score.
Visit Credible for compare personal loan rates from lenders that allow co-signers. Checking your rates won’t hurt your credit score.
seven. Monitor and dispute errors on your credit reports
If you have inaccurate negative information listed on your credit reports (such as a refunded account reported as overdue), it can negatively affect your credit score. For this reason, it’s a good idea to monitor your reports for errors at least once a year.
You can view your credit reports from the three major credit bureaus by visiting AnnualCreditReport.com. If you find an error, you can dispute it directly with each credit bureau, which includes it on your credit report. If the error is removed, it may increase your score.
8. Ask to increase your credit limit
Credit cards come with credit limits, but you can request 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.
However, a potential downside is that some credit card companies do an extensive credit check to determine your eligibility for a credit limit increase. As a result, your score may drop temporarily.
9. Pay off existing debt
Your outstanding debt represents 30% of your credit score. Similar to increasing your credit limit, paying down your debt can reduce your credit utilization rate. Two strategies you can use to pay off debt faster increase your income and reduce your monthly expenses.
Another benefit of paying off your debt is that it can lower your debt-to-income ratio (DTI), which is your monthly debt divided by your monthly gross income. Although your DTI ratio is not a credit reporting factor, lenders often take it into account when applying for a loan. The lower your DTI, the better your chances of approval.
If you’re ready to apply for a personal loan, Credible lets you compare personal loan rates so you can find the one that best suits your needs.