When applying for a personal loan or new credit obligation, it helps to be prepared. This not only means getting your paperwork in order, but your credit as well. When banks or lenders are deciding to approve or decline a personal loan, it’s mostly based on your credit report. This is why before submitting your application, setting aside the time to clean up your credit report is a wise choice.*
Here are five ways to improve your credit:
1. Request and review your credit report
To gauge your chances for approval for a new credit card or loan, be sure to go over your credit report to see where you stand. Every 12 months, you are allowed to request a free credit report from one of the three credit reporting companies, Equifax, Experian and TransUnion. Review your payment history, accounts opened, debts listed and other information lenders will see when evaluating your application for new credit. Determine if there are any red flags that could prevent you from being approved, such as late payments or items in collections.
2. Dispute negative marks
In case you do have negative items affecting your credit report, you have the option to dispute any mistakes or inaccuracies that could bring down your score. According to the U.S. Federal Trade Commission, the first step toward challenging negative marks on your report is submitting a report to the credit reporting firm either in a written letter or through an online form. Identify the specific items that appear to be incorrect, such as an account marked delinquent or as having late payments, and provide evidence and facts that support your claims. The credit reporting bureau will conduct an investigation and notify you in writing of the results.
“Credit mix makes up 10 percent of your score.”
3. Improve your credit mix
According to credit score provider FICO, credit mix makes up 10 percent of your score. To improve your creditworthiness, consider improving your credit mix by having different types of credit, from installment loans to revolving credit. If you have only relied on revolving credit, such as credit cards, to build your payment history on your report, consider applying for installment loans. By showing lenders you are able to responsibly manage both revolving credit and installment loans, you could increase your chances for approval for new credit.
4. Ensure accounts are in good standing
In addition to correcting mistakes on your credit report, you should make sure all your accounts are in good standing. An account in good standing does not have late payments or other negative marks. To maintain accounts in good standing, keep making on-time payments and paying attention to balances to avoid taking on too much debt.