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4 Steps To Boosting Your Credit Before Applying For A Loan

Updated: Mar 12, 2021

Photo by Asa Dugger from Pexels

Do you plan to apply for a loan soon? Take some time to improve your credit first to increase your chances of getting approved. A higher credit score could qualify you for better interest rates on auto loans, personal loans, and credit cards and save you a bundle. With mortgage loans, cost savings could amount to tens of thousands of dollars over the loan term.

These steps can help boost your credit score before you apply for a loan:

1. Bring Any Past-Due Accounts Up to Date

Your payment history is the most important part of your FICO Score, accounting for 35% of the score calculation. You can improve your credit score by bringing any delinquent accounts current. Late payments will remain on your credit report for seven years, but their impact lessens over time.

Going forward, be sure to pay all your bills on time to start rebuilding positive payment history. Timely credit card and loan payments have the biggest impact on your score, but you also want to stay current on non-debt bills, such as medical bills and utilities, to prevent them from going to collections. Collection accounts can have a significant negative impact on your credit score.

2. Regularly Review Your Credit Reports

Credit reporting errors are rare, but they can significantly lower your credit score. Check your credit reports from Experian, TransUnion, and Equifax for free at to make sure the information listed is correct.

File disputes right away with the relevant credit bureaus if you spot inaccuracies, such as a reported late payment that you know you made on time. If an item in question is hurting your credit score, you could see an increase if it is removed.

3. Pay Down Your Credit Card Balances

Your credit utilization ratio is another important factor in your credit score. It shows how much credit you’re using (mainly on credit cards) compared with the amount of credit you have available. This figure is calculated by dividing the sum of all your credit card balances by your total credit limits; multiply by 100 to get a ratio percentage. A low credit utilization rate demonstrates to creditors that you can responsibly manage your credit cards.

Creditors prefer that you keep utilization ratios below 30%—and the lower, the better. So, if your total available credit across all your credit cards is $10,000, aim to reduce the outstanding balance across all your cards to $3,000 or less to help your credit score. For the best scores, use 10% or less of your available revolving credit.

4. Don’t Apply for Any Other New Credit

When you apply for new credit, lenders will make a hard inquiry on your credit report to determine your creditworthiness. This can slightly lower your credit score, although the impact typically only lasts for a few months.

Several hard inquiries or new accounts in a short period—especially before you’re getting ready to apply for a substantial loan such as a mortgage or car loan—may be a red flag for lenders and could hurt your chances of approval. As you prepare to apply for a loan, avoid applying for other new credit or making large purchases (which can reduce your savings or increase your credit utilization ratio—both negatives in lenders’ eyes).

The Bottom Line

It’s worthwhile to work on your credit before applying for a loan. A higher score can increase your approval odds and possibly save you a lot in interest over the life of the loan. Work on paying down balances, making all payments on time, and keeping an eye on your credit as you prepare to apply for a loan. Free credit monitoring services, such as the one from Experian, will show you where your credit is before you shop around for loans.

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Allison Martin is a Certified Financial Education Instructor (CFEI), syndicated financial writer, and author. Her work has been featured in The Wall Street Journal, ABC, MSN Money, Yahoo! Finance, Fox Business,, MoneyTalksNews, Investopedia, The Simple Dollar, and a host of other reputable publications. She also teaches the essentials of personal finance through seminars and workshops.

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