How to Improve Your Credit Score Before Requesting a Loan

Your credit score is one of the most critical factors lenders look at when you request a personal loan. A higher score not only increases your chances of approval but can also help you secure better interest rates and terms, saving you thousands of dollars over the life of the loan.

1. Check Your Credit Report for Errors

Before you can improve your score, you need to know where you stand. You are entitled to a free credit report from each of the three major bureaus (Equifax, Experian, and TransUnion) once a year at AnnualCreditReport.com.

Review these reports carefully for:

• Accounts that don't belong to you
• Incorrect late payments
• Accounts incorrectly listed as in collections

If you find errors, dispute them immediately with the credit bureau. Removing inaccurate derogatory marks is one of the fastest ways to see a score jump.

2. Pay Down Your Credit Card Balances

Your credit utilization ratio—how much of your available credit you are using—accounts for 30% of your FICO score. Lenders prefer to see this ratio below 30%.

For example, if you have a credit card with a $10,000 limit, try to keep your balance below $3,000. If you have cash available, making a large payment to reduce your utilization can result in a significant score boost as soon as the lower balance is reported to the bureaus.

3. Set Up Automatic Payments

Payment history is the single largest factor in your credit score, making up 35%. Even a single 30-day late payment can drop an excellent score by up to 100 points.

To ensure you never miss a due date, set up automatic minimum payments for all your credit cards and student loans. If you are struggling to make payments, contact your creditors before the due date to ask about hardship programs.

4. Become an Authorized User

If you have a trusted family member or spouse with a long history of on-time payments and low credit utilization, you can ask them to add you as an authorized user on their oldest credit card.

You don't even need to possess or use the card; simply being added to the account will allow their positive payment history to appear on your credit report, giving your score a quick lift.

5. Don't Close Old Accounts

15% of your credit score is based on the length of your credit history. When you close your oldest credit card, you not only shorten your average account age but also reduce your total available credit, which can spike your utilization ratio.

Unless the card has a high annual fee, it is generally better to keep it open and use it occasionally for small purchases to keep it active.