Your credit report is a snapshot of your ability to manage debt. Your credit report and credit score determine whether or not you qualify for a variety of financial tools, especially loans.
To confidently apply and qualify for the best loan terms, you can take simple steps to boost your credit score. Review this guide to learn how.
How Your Credit Report Impacts Your Loan Options
Your credit score – a figure that represents the information in your credit report – can impact where you live, what kind of car you drive, and how much you pay for loans. Average interest rates for a new car loan jump by almost a full percent when your score drops below 781.
When you apply for a loan, your lender will check your credit. Your loan options will vary based on a few factors, specifically:
- Payment history: Your payment history is the most important component of your credit score. If you don’t make monthly payments on time, your credit score will take a hit.
- Outstanding balances: Lenders look at how much of your debt you’ve paid and how high your revolving balances are. The higher your balances, the greater the risk to your lender.
- Public records: Bankruptcies and tax liens, as well as collection accounts that lead to judgments, can all negatively impact your ability to qualify for loans.
While lenders don’t publicize their precise credit models, they generally rely on standards set by credit bureaus like Equifax, Experian, and TransUnion.
6 Effective Ways to Boost Your Credit Score to Qualify for Loans
Improving your credit score does take some time, but if you commit yourself to the process, you may see results in a few months.
1. Turn On Autopay to Maintain a Consistent Payment History
Your payment history is the single most significant factor in your credit score – it comprises 35% of it, according to FICO. That means it needs to be a priority to make your monthly payments on time.
Most lenders give you the option of signing up for autopayments. Alternatively, you can also use an online bill payment feature with your financial institution.
If you’re having trouble making your payments on time, ask your lender if you can reschedule the due date. This may help you avoid late fees and keep your payment history on track.
2. Pay Down Loan Balances to Lower Your High Credit Limit
The outstanding balances you have on your revolving credit accounts is the second most important factor in your credit score at 30% of it, according to Experian. That means you need to lower your revolving loan balances to boost your credit score.
If you have plans to apply for a new car loan or personal loans in the future, you might want to invest as much of your disposable income in paying down your credit card balances.
3. Work with Collection Agencies to Pay Off Past Due Accounts
Collection accounts stay on your credit report for up to seven years. That means your past due payments can impact your credit score for almost a decade. Fortunately, most collection agencies and lenders are willing to work with you to settle account balances.
Figure out how much you can afford to pay every month and make an offer to the collection agency. They may settle for less than you owe, though there might be a note on your credit report.
4. Invest in a Credit Monitoring Service to Track Your Score
Some credit card companies and financial institutions offer credit monitoring services as a perk or feature. Dozens of private businesses and bureaus exclusively offer these monthly account updates, which can be an effective way to closely track changes in your score.
In addition to helping you monitor your score, credit monitoring services can alert you to any identity theft or fraud. This can help keep your score from taking a serious hit.
5. Pull Your Credit Report from Major Bureaus Once a Year
One of the most effective ways to ensure you have a good credit score is to routinely check your credit report. You can pull your credit report once a year for free from each of the three major bureaus with AnnualCreditReport.com.
While your credit report won’t have your credit score, it can help you spot any errors that might be causing damage to it. You can dispute these online in most cases.
6. Limit Credit Inquiries and Avoid Opening New Accounts
New accounts only comprise 10% of your credit score, but they can have a significant impact on people who are on the cusp of qualifying for better interest rates. It can also indicate a risk to lenders.
It’s important to only apply for credit when you need it. You should also take advantage of rate shopping when you’re applying for car loans and mortgages.
Your Credit Can Help You Find the Right Lender
Interest rates vary from lender to lender, but if you know your credit score, you can find lenders with the best rates. It’s good practice to get at least three loan offers to compare.
Review a few of these offers and compare the costs and benefits of each one. Read through reviews and contact the lender if you have any questions – a reputable lender will be happy to help you.
Are you looking for a lender to help fulfill your goals? Mariner Finance is ready to guide you through the process of finding the right loan for your needs.