Improve Your Credit Score Before Applying

Emily Parkin

Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

Personal loans can be used for a variety of expenses, including weddings, vacations, home repairs and even as a way to cover emergency costs. There are a ton of lenders out there that cater to an assortment of needs and financial circumstances, including those who have fair or poor credit scores and still need to take on a loan to finance a large purchase.

While this can help more people get access to this financial product, there are still some big advantages to making sure your credit score is as healthy as possible before you apply for a personal loan.

You can qualify for lower interest rates on a personal loan

You won’t need to apply with a co-applicant

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 21.28% when you sign up for autopay

  • Loan purpose

    Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.49% to 19.99%* when you sign up for autopay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, wedding and others

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

Also keep in mind that your co-applicant would need to feel comfortable being on the hook for the responsibility of managing the loan with you, and a co-applicant is most beneficial when their credit score is higher than yours.

But if your credit score is already in the good or excellent range, you should feel comfortable moving forward without a co-applicant — that’s another advantage to improving your credit score before submitting an application.

How to improve your credit score

Much like with any new line of credit, personal loans should be carefully considered before you submit your application and decide to use it for funding an expense. While you weigh your options, though, you might want to take a few steps to improve your credit score.

Paying your bills on time is the most important thing you can do to help raise your score. FICO and VantageScore, which are two of the main credit card scoring models, both view payment history as the most influential factor when determining a person’s credit score (it accounts for 35% of your credit score). For lenders, a person’s ability to keep up with their credit card, utility, student loan, mortgage and medical debt payments indicates that they are capable of taking out a loan and paying it back.

Next, you should try to lower your credit utilization rate. Your credit utilization rate is your total credit card balance divided by your total amount of available credit. So if you have a limit of $5,000 and you have a $2,500 balance, your credit utilization rate is 50%. Experts typically recommend keeping your total CUR below 30%, and below 10% is even better. You can lower this rate by paying down your balance or asking your credit card issuer to increase your credit limit.

Another good way to improve your credit score is to keep an eye out for any discrepancies on your credit report. Errors on your credit reports could be hurting your score. While it may seem unlikely that your reports would be flawed, 26% of participants in a study by the Federal Trade Commission (FTC) found at least one error on their reports that could make them appear riskier to lenders.

You can proactively monitor your credit and receive three free credit reports (one from each bureau) annually at annualcreditreport.com. Select also rounded up the best credit monitoring services: ranking CreditWise® from Capital One as the best free service and IdentityForce® as the best paid service with more extensive features.

Catch up on Select’s in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.


https://www.cnbc.com/select/personal-loans-improve-your-credit-score-before-applying/

Next Post

Business News | Stock and Share Market News | Finance News

Search Quotes, News, Mutual Fund NAVs Infosys INE009A01021, INFY, 500209 HDFC Bank INE040A01034, HDFCBANK, 500180 Adani Wilmar INE699H01024, AWL, 543458 Tata Power INE245A01021, TATAPOWER, 500400 Jubilant Food INE797F01020, JUBLFOOD, 533155 […]