What Your Local Bank’s Lenders Look For When Reviewing a Credit Report
The credit scoring system can be confusing, especially if you don’t know how it works. It can be pretty tricky figuring out what makes your FICO score better or worse. Luckily, there are some tried-and-true methods that should help your credit score improve.
People want better credit scores for several different reasons - they may want to buy a house, get a new credit card, move into a new place to rent, or buy a car. Or they simply want to ensure their credit is in tip-top shape for whatever the future holds. No matter the reason, improving your credit score opens the door to financial opportunities.
Another scenario where an excellent credit score is beneficial is if you’re planning to take out a personal loan at a local bank. Personal loans can be used for a wide array of situations that require funding, including emergency expenses, debt consolidation, paying off home repairs, and moving costs, just to name a few. Knowing what your financial goals are can help guide you in the right direction and benefit you for a lifetime.
Is My Credit Score Good Enough to Get a Personal Loan?
Getting a personal loan can be an intimidating process, so it’s important to know how to approach applying for one and the best ways to present yourself as a low-risk borrower to lenders. When banks assess potential borrowers, they look at employment history, income, debts, and, of course, your credit score.
Truthfully, almost anyone with credit history can qualify for a personal loan. However, those with poor credit may only qualify for a small loan amount with a very high interest rate. Only those with good or great credit are offered advantageous loan terms from their local bank, which is why working on your credit profile is so important.
According to Experian - one of the three major credit reporting bureaus - credit score tiers break down as follows:
- 300 - 579: poor
- 580 - 669 fair
- 670 - 739 good
- 740 - 799 very good
- 800 - 850 exceptional
Five Ways to Improve Your Credit Profile
The interest rate and qualifying amount of a personal loan are dependent on your credit score. A higher score yields lower interest rates, which means that you’ll end up paying less over time when repaying it.
According to Experian, the following are five ways to improve your overall credit profile that should positively influence your score.
#1: Use a Personal Loan for Debt Consolidation
Using a personal loan for debt consolidation is a popular method for improving credit scores. If you have several high-interest credit card balances, you can consolidate them all under a lower interest rate using a personal loan. Removing all those high-balance revolving debts should help boost your credit score. It also makes paying bills simpler because you won’t have to make multiple monthly credit card payments (if you keep their balances at zero).
#2: Make Payments On-Time Everytime
According to Nerdwallet, a payment that is more than a month late can hurt a credit score by a margin of up to 100 points. If you want to retain your credit score’s current condition, avoiding late payments is imperative.
The second thing to know is that nothing carries more weight than making on-time payments. According to myFICO, on-time payments account for 35 percent of how a FICO score is calculated. An extensive history of on-time payments with no late payments looks great to lenders; it illustrates you’re consistent and reliable.
#3: Utilize Credit Card Best Practices
Arguably one of the biggest impacts on your credit score is your credit card usage. If your credit card balance is below 30 percent of the total limit, your score shouldn’t be negatively affected by your usage. However, once you break the 30 percent threshold, your score may begin to drop.
The best way to use a credit card is to make at least a few transactions per month on things like bills, groceries, and gas. Then, before your next billing cycle kicks in, pay off the entirety of the card so that you don’t get hit with any interest.
For those who are having trouble getting approved for a credit card, a secured credit card allows creditors to give you a line of credit while also making sure you can pay it back. You simply need to come up with the required deposit amount. Secured credit cards can help you build your score and show diversity in your lines of credit, which also helps improve your credit profile.
Remember, using credit cards to improve your score only works if you’re using them responsibly and paying them off regularly.
#4: Diversify Your Credit Profile
Credit diversity illustrates to lenders that you have varying lines of credit and accounts that you are able to maintain. For instance, a mortgage, an auto loan, and a few credit cards looks better compared to a report that has just credit cards or just an auto loan. Having a mix of different types of credit should positively influence your credit score, just as long as you’re making all your payments on time. Lenders want to see that you’re capable of managing several lines of debt, which improves your chances of getting a better interest rate on a personal loan.
#5: Keep Your Old Accounts Open
It may seem like closing an old credit card you never use or paying off your car loan would raise your credit score - when, in fact, it actually lowers it. The more accounts you have left open, the longer your credit history is. Longstanding accounts are impressive to lenders and make you seem like someone they can trust in the long run. So, even if you never use one of your old cards, keeping it open benefits your credit profile.
Visit Your Local Verimore Bank to Apply for a Personal Loan
Improving your credit score will allow you to have more options when it comes to applying for a personal loan. Plus, it will create more financial opportunities for you in the long run. Once you have your score in a place that feels comfortable to you, visit our local bank to talk to one of our lending experts.
Verimore Bank is here to help. With several options for personal banking, such as free checking accounts, we are here to help you on your financial journey.
Contact us at (855) 871-3303 or at eBanking@verimore.bank.