Top Tips for Improving Your Credit Score Before Applying for a Loan

Top Tips for Improving Your Credit Score Before Applying for a Loan

If you’re thinking about applying for a loan, your credit score plays a major role in determining whether you get approved and the interest rates you’ll pay. Whether you’ve had a few bumps along the way or you're looking to boost an already decent score, here are some practical tips to help improve your credit score before you apply for a loan.

Check Your Credit Report Regularly

One of the easiest and most important things you can do is to check your credit report. Your credit report is a detailed summary of your credit history, and it’s used to calculate your credit score. Make it a habit to check your report at least once a year to ensure there are no errors. Even a small mistake, such as a payment marked late when it wasn’t, can bring down your score.

Tip: You can view your credit report from the Scorewise app on Appstore and Playstore.

Reduce Your Credit Card Balances

Another key factor in your credit score is your credit utilization ratio. This refers to how much of your available credit you’re using at any given time. For example, if you have a credit limit of $10,000 and your balance is $5,000, your credit utilization is 50%. Ideally, you want to keep this ratio below 30%.

Action Plan: Pay down your balances as much as possible before applying for a loan. If that’s not feasible, consider asking for a credit limit increase (just don’t use the extra credit!).

Don’t Close Old Credit Accounts

It might seem counterintuitive, but closing old credit accounts can actually hurt your credit score. The length of your credit history makes up about 15% of your credit score, so closing a longstanding account could shorten your credit history and lower your score.

Tip: Keep your oldest credit accounts open, even if you no longer use them regularly. Having long-standing credit relationships can help boost your score.

Limit New Credit Applications

When you apply for new credit, such as a credit card or loan, it triggers a “hard inquiry” on your credit report. Too many hard inquiries within a short period can lower your score and make lenders nervous. If you’re preparing to apply for a loan, try to avoid applying for other forms of credit in the months leading up to your loan application.

Tip: Be strategic. Only apply for credit when you absolutely need it. Multiple inquiries within a short window (typically 14-45 days, depending on the scoring model) for the same type of loan (e.g., auto loan) may be grouped together as a single inquiry, so plan wisely.

Settle Any Outstanding Debts

Lenders want to see that you can manage your debt responsibly. If you have any outstanding collections or past-due debts, paying them off can help improve your score. While paid-off collections may not disappear from your credit report immediately, showing that you're settling debts will reflect positively on your creditworthiness.

Action Plan: If you’re behind on payments, reach out to your creditors to work out a payment plan. Resolving debts shows responsibility and helps improve your score over time.

Be Patient, Improvement Takes Time

Improving your credit score isn’t something that happens overnight, but with consistent effort, you’ll see progress over time. Even small improvements can have a big impact when you’re applying for a loan, leading to better interest rates and loan terms.

Remember, your credit score is a reflection of your financial habits. So the more responsible you are with your credit, the more likely you are to see your score rise.

Take control of your credit today, download the Scorewise app! A better score means a better future! By focusing on these practical steps, you'll be on your way to boosting your credit score and securing the loan you need. Happy credit-building!