Have you ever applied for a loan to be denied or given a high interest rate? Your credit score might be the reason.
A strong credit score is a key to getting approved for loans with favourable terms. Whether you're looking for a mortgage, car loan, or personal loan, lenders use your credit score to determine if you're a trustworthy borrower. But what if your score isn't where it should be?
Don't worry! There are effective ways to boost your credit score and increase your chances of loan approval. Let's examine each step.
Before improving your credit, you must understand how your score is calculated.
What Makes Up Your Credit Score?
Credit scores generally range from 300 to 850, with higher scores indicating better creditworthiness. Five key factors determine your score:
Have you paid your bills on time? Late payments hurt your score the most.
This refers to how much of your available credit you’re using. Lower is better.
The longer you’ve had credit accounts open, the better.
Applying for too many new credit lines quickly can lower your score.
A mix of credit cards, loans, and retail accounts can help improve your score.
Now that you know what affects your score, let’s dive into actionable ways to improve it.
Payment history is the most significant factor in your credit score. Even one missed payment can significantly lower your score.
• Set up automatic payments for bills like credit cards, utilities, and loans.
• If you miss a payment, pay it immediately to avoid further damage.
• Contact your lender if you're struggling. Some may offer hardship options to prevent late payments from damaging your credit.
Using too much of your available credit can signal financial distress to lenders. Ideally, you should keep your credit utilization below 30%—even better if it's under 10%.
• Pay down credit card balances as much as possible.
• Request a credit limit increase (but don’t use the extra credit!).
• Spread expenses across multiple cards instead of maxing out one.
If your total credit limit is $10,000, keep your balances below $3,000 (30%) or below $1,000 (10%).
Whenever you apply for a new credit card or loan, the lender performs a "hard inquiry" on your credit report. Too many inquiries in a short time can lower your score.
• Only apply for credit when necessary.
• Space out applications by several months.
• Before applying, check if you pre-qualify for a loan to avoid unnecessary hard inquiries.
It might seem wise to close an old credit card you don't use, but it can hurt your score. Older accounts help your credit history, and closing them reduces your available credit, increasing your utilization ratio.
• Keep old credit cards open, even if you don’t use them often.
• Please make a small purchase on inactive cards occasionally to keep them active.
Lenders like to see that you can responsibly handle different types of credit. If you only have credit cards, consider adding an instalment loan (such as a car or personal loan) to your credit profile.
• Take out a small credit-builder loan or a secured credit card if needed.
• Avoid opening unnecessary accounts just for the sake of credit mix—it's a minor factor compared to payment history and utilization.
Mistakes happen. Sometimes, incorrect information on your credit report can drag your score down. You have the right to dispute errors and have them corrected.
• Get a free credit report from AnnualCreditReport.com.
• Look for incorrect late payments, fraudulent accounts, or wrong balances.
• To correct mistakes, file a dispute with the credit bureau (Experian, Equifax, or TransUnion).
If you have a trusted friend or family member with a strong credit history, they can add you as an authorized user on their credit card. This allows you to benefit from their positive payment history and low utilization.
• Ask a responsible person with good credit if they can add you as an authorized user.
• Make sure the credit card issuer reports authorized users to credit bureaus.
• You don't need to use the card—their positive history can boost your score.
If your score is low, consider using specific credit-building strategies designed to help improve it over time.
Some credit unions and online lenders offer small loans designed to help improve credit. You make monthly payments, and once the loan is repaid, you get the money back.
These require a cash deposit as collateral, but they help build credit if used responsibly. After months of good payment history, you may qualify for an unsecured credit card.
Some services allow you to report rent or utility payments to credit bureaus, helping you build a positive credit history.
If you have late payments or charged-off accounts, you can negotiate with your creditors to remove them from your credit report.
• Call your lender and ask if they’ll remove a late payment as a goodwill gesture.
• If you have collections, try negotiating a pay-for-delete agreement, where the creditor removes the negative mark in exchange for payment.
Improving your credit score doesn’t happen overnight. It takes time, but every positive step adds up.
• Stick to your plan—pay bills on time, keep balances low, and avoid unnecessary credit applications.
• Check your credit score regularly to track your progress.
• Stay disciplined, and you’ll see results in a few months.
A high credit score opens the door to better financial opportunities—lower interest rates, higher loan approvals, and more financial freedom. The key is to have good credit habits consistently.
If you take action today—paying bills on time, reducing credit utilization, and disputing errors—you’ll be well on your way to boosting your score and securing that loan you need.
Remember, credit improvement is a journey, not a race—but every step you take gets you closer to your goal!
