If you have no credit history or a bad credit score, you may have trouble qualifying for a personal loan without a cosigner. Even if you’re approved on your own, a lender may charge you fees and a high interest rate.
But the good news is that your credit score isn’t set in stone. You can take several steps to boost it if it’s not where you want it to be.
Credible makes it easy to see your prequalified personal loan rates from various lenders, all in one place, before you officially apply for a loan.
9 ways to improve your credit score before applying for a personal loan
These nine strategies can help you improve your credit before you apply for a personal loan. The one that works best for you will depend on your unique financial situation.
1. Pay all your bills on time
Your payment history is the most important factor that determines your credit score, accounting for 35% of your score. Repaying debt on time can add positive payment history to your credit reports, which can boost your score.
On the other hand, repaying your debt and other bills late can cause serious damage to your credit. To minimize your chances of missing a payment, consider enrolling in autopay or using a spreadsheet to stay on top of your due dates.
2. Get credit for paying your rent
Paying your rent on time doesn’t usually improve your credit score since the payments aren’t typically reported to the credit bureaus. But you can use some third-party services to get credit for your rent payments.
To do this, you can sign up for a service that reports your rental payment history to the credit bureaus (for a fee). If you’re eligible, the company you applied with will contact your landlord to confirm your rental payments.
3. Become an authorized user
If you have a family member who has excellent credit, consider asking them to add you as an authorized user on one of their credit cards. You may receive a credit card of your own, but the primary account holder will be the only person responsible for making payments.
If the credit card issuer reports the primary account holder’s credit history on your credit reports, it can improve your score. But a potential downside is that if the primary account holder makes a late payment, it could damage your credit.
4. Get a secured credit card
A secured credit card is designed to help you build or reestablish credit. Unlike a traditional credit card, it requires an upfront security deposit, which is often equal to your credit limit.
When you use the card, the credit card issuer usually reports your monthly payments to the three main credit bureaus — Equifax, Experian, and TransUnion. If you pay your credit card bill on time, it could improve your score. Your credit card issuer may increase your credit limit or even upgrade you to an unsecured credit card after you’ve made a certain number of consistent, on-time payments.
5. Apply for a credit-builder loan
A credit-builder loan is an installment loan that you can use to build credit. It operates differently than a traditional personal loan in that you don’t receive your loan funds up front. Instead, the lender will deposit a small amount into a locked savings account, and you’ll make fixed monthly payments to the lender for a certain period of time. At the end of the loan term, you’ll receive those funds.
As you make your payments, the lender reports them to the major credit bureaus. Making on-time payments helps you build a positive credit history, which can help you qualify for a traditional personal loan in the future.
6. Find a cosigner
If you’re having trouble qualifying for a personal loan on your own or you want a better chance of securing a low-interest rate personal loan, consider asking a family member or friend with good credit to be a cosigner. Before a person agrees to cosign your loan, make sure they’re aware that they’ll be responsible for repaying the loan if you can’t.
Making your monthly payments on time could boost your credit score. But late payments can cause significant damage to your (and your cosigner’s) credit score.
Visit Credible to compare personal loan rates from lenders that allow cosigners. Checking your rates won’t hurt your credit score.
7. Monitor and dispute errors on your credit reports
If you have inaccurate negative information listed on your credit reports (like a paid-off account reported as delinquent), it can have a negative effect on your credit score. Because of this, it’s a good idea to monitor your reports for errors at least once a year.
You can view your credit reports from all three major credit bureaus by visiting AnnualCreditReport.com. If you find an error, you can dispute it directly with each credit bureau that includes it on your credit report. If the error is removed, this can boost your score.
8. Ask to raise your credit limit
Credit cards come with credit limits, but you could ask for a credit limit increase by phone or online. If you’re approved for a higher credit limit, it could lower your credit utilization ratio and increase your credit score.
However, a potential downside is that some credit card companies perform a hard credit inquiry to determine your eligibility for a credit limit increase. As a result, your score could temporarily drop.
9. Pay down existing debt
Your outstanding debt accounts for 30% of your credit score. Similar to increasing your credit limit, paying down your debt can lower your credit utilization ratio. Two strategies you can use to pay down debt faster are boosting your income and trimming your monthly expenses.
Another benefit of paying down your debt is that it can lower your debt-to-income (DTI) ratio, which is your monthly debt divided by your monthly gross income. Although your DTI ratio isn’t a credit-scoring factor, lenders often consider it when you apply for a loan. The lower your DTI, the better your approval odds.
If you’re ready to apply for a personal loan, Credible makes it easy to compare personal loan rates so you can find one that best suits your needs.