Lenders usually use a credit score to determine your ability to repay any loan. Lower scores may lead to loan rejection or you may be charged high interest rates.
Before you apply for a new loan, make sure you have a good credit rating. There are various measures you can take to improve your score. Here are 6 things you can do to improve your overall credit score.
1. Pay your debts on time
Late debt payment is something that can have a drastic impact on your credit rating. If you make late payments, your credit score can drop on your watch. It is important to pay all your bills on time and try to catch up if you are behind on your payments. It’s a good idea to talk to your lender if you can’t make an early payment due to various factors. You can also consider the strategy of paying as much money as possible to reduce your debt.
2. Check your credit report for errors
You should review your credit report to check for errors. Each individual is eligible to get at least one free report from each of the 3 major reporting agencies, which does not affect your credit score. You can do this by using the services of credit repair companies to check your report. They can dispute the errors found in your report. Other mistakes can be costly, such as debts listed twice or accounts with incorrect balances. Correcting incorrect information can significantly improve your credit score.
3. Prevent identity theft and fraud
Credit monitoring helps you check the changes in your credit score over time. You can try using a credit monitoring service to monitor your credit report for aspects like paid accounts and new accounts you’ve opened. Credit monitoring services will provide you with one of your credit reports from one of the major credit bureaus, including Experian, Equifax and TransUnion. Professional credit monitoring companies can also help prevent problems like identity theft and fraud. Unscrupulous people can steal your identity and open multiple accounts, leading to loss of money and bad credit rating.
4. Use a debt consolidation plan
If you have several outstanding debts, it may be a good idea to get a debt consolidation loan from a credit union or bank to pay them off. Consolidating your debt leaves you with one loan to deal with, and it can also lower your interest rate. This will help you pay off your debt faster and improve your credit score. Although the difference caused by debt consolidation may be small, it improves your score significantly.
5. Limit credit inquiry requests
You must limit credit inquiries on your credit report to maintain a good credit score. A soft inquiry is when you check your credit or allow a potential employer to check your credit. Credit checks from financial institutions do not have a negative effect on your business. Hard inquiries can have a negative effect on your score from a number of months up to almost 2 years.
Hard inquiries include an application for a car loan, a mortgage, a new credit card or any type of loan. Lenders will make hard inquiries on your credit report, which can stay on your credit history for two years. You should not apply for a loan for a certain period of time to improve your score. Removing the hard queries from your report can also increase your score.
6. Keep old accounts open
If you have an old account, do not close it after you have paid off your debt. You should not close other accounts connected to the old account as you can use it to your advantage. Keeping old accounts open will make it look like you’re not using much credit. This will help increase your credit score by bringing down your credit utilization. You will appear as a responsible borrower if the lenders see all the paid accounts and lower credit utilization.
If you are planning to apply for a loan to buy a large asset like a house or home, you need to have a good credit rating. Lenders generally look at your score to approve or reject your loan application. Your credit rating also determines the interest you can be charged for your loan. Therefore, it is a good idea to improve your credit score to enjoy better results. These tips can go a long way in improving your credit score.