Cleaning up credit dramatically increases the likelihood of receiving approval for a low interest rate loan. Whilst it can take a number of months to recover from the more serious credit transgressions, such as defaults, delinquent accounts and bankruptcy, there are some steps that can be taken to get a better credit rating relatively quickly. An improved credit score means that lenders will offer cheap unsecured personal loans because that customer is deemed to be a lower default risk.
Fix Credit Report Errors Before a Low Interest Rate Loan Application
A surprising number of errors exist so it’s important to scrutinise each credit report for mistakes before applying for a low rate loan. Examples include credit applications that weren’t ever made, lapsed credit that shows as active and accounts that weren’t settled correctly. The Fair Credit Reporting Act gives the consumer or credit attorney the right to amend any erroneous data through the credit reference agency.
Reduce Debt Prior to Benefit from a Low Loan Rate
All lenders examine personal debt relative to the prospective customer’s income before making a low interest rate loan decision. Paying down debt not only improves affordability, it leads to an improved credit score rating. Whilst the repayment history is the most important factor (35% of a score), the amount of outstanding debt relative to that person’s credit limit (30% of a score) comes a close second. Rather than leaving savings in a bank account earning minimal interest, consider using this money to pay off debt.
Don’t Max-Out a Credit Card for a Better Credit Rating
Whilst making a repayment outside of the normal repayment cycle causes a score to plummet about 80 points, maxing-out a card also causes a fall of 10 to 30 points. Using the full amount of available credit is seen as a warning sign of financial difficulties and likely default. Avoiding this scenario can help with credit report repair in as little as a 2 to 3 months.
Use Less Than 30% of the Credit limit When Cleaning Up Credit
Whilst many consumers have a preferred card, it is actually better to use a small percentage of the available credit limit on each card. Most financial experts agree that using under 30% of the available limit in any single month will help to clean up credit. A low rate loan application is far more likely to be accepted if the prospective customer uses less than 10% of his or her credit limit on each card.
Clean Up Credit By Using Obsolete Store and Credit Cards
In order to increase the likelihood of approval for a cheap unsecured personal loan, don’t leave old cards to gather dust. Use them sparingly and settle the full balance at month end for a slightly better credit rating. Closing down old cards normally results in a lower score.
Clean Up Credit Before Applying for a Low APR Loan
Cleaning up credit can take anywhere from a few months to a few years. The measures alluded to above are designed to repair a credit report fast. They are typically designed to improve credit from fair to good or from good to excellent. More serious credit indiscretions, such as filing chapter 7 or loan defaults, cannot be overcome quickly. If this is the case, it may be better to consider specialist bad credit financial products until a better credit rating is achieved.