Your credit score plays a major role in your ability to secure an affordable personal loan. The higher your score is, the more trustworthy lenders consider you to be, and you can enjoy access to a wider variety of personal loans with lower rates of interest than those with low scores. If your credit score leaves a lot to be desired but you’re hoping to take out a personal loan, you should make efforts to improve it. Here are four tips for building a better credit score.
1. Fix errors in your credit report
Errors may be more common in credit reports than you think, with one in three people finding at least one mistake. This statistic speaks to the importance of regularly checking your report. Some errors, such as a typo in your address, may not have any impact on your credit score, but any errors relating to actual credit accounts could be detrimental. If you do spot an error, you can report it to the relevant credit bureau with evidence supporting your request for a correction. Plus, making regular checks will make it easier to spot signs of fraud on your credit report, helping to keep you and your money safe.
2. Make payments on time
It’s vital that you make debt payments on time each month to demonstrate that you’re a reliable borrower. Late payments can stay on your credit report for seven years in the US, meaning that a single mistake can affect your financial health long after it happens. Set up direct debits and standing orders wherever possible to minimise the risk of late payments. If you ever face financial hardship, contact your lender well before missing any payments so that you can negotiate a temporary reduction or pause in payments until you’re in better financial standing.
3. Take out a credit card and use it often
More than 30% of people are unaware that you can boost your credit score with a low credit card balance. This is because lenders have a difficult time assessing your trustworthiness when you have no credit record or a very minimal credit record. Take out a credit card, use it regularly, and pay off your balance every month to prove that you’re a responsible borrower.
4. Maintain a low utilisation rate on revolving credit
Revolving credit is that which renews as it is paid off, and your credit utilisation limit is the percentage of your revolving credit limit. For example, if you had a credit card with a limit of $1000 and you used $300 of that credit limit, your utilisation is 30%.
The lower your credit utilisation rate is, the better, and you should aim to keep it below 30% to prevent it having a significant impact on your credit score. To calculate your overall credit utilisation rate, add up the outstanding balances of your revolving credit accounts, then add up the credit limits of these same accounts. Divide the total outstanding balance by the total amount of credit, then multiply this figure by 100 to find the percentage.
Build your credit score for a better personal loan
Put these tips into action to start building up your credit score. The higher your credit score is, the more choice you’ll have when it comes to securing a personal loan with reasonable terms and affordable rates of interest.