As a consumer, you may think that you cannot influence whether a loan or credit card application will be approved or what interest rate you could receive. In reality, you can take certain steps before filling out an application that may increase your chances of getting an approval with a favorable interest rate and attractive account terms.
Consider simple ways to improve your credit scores. Paying your bills and loans on time and owing as little as possible on your credit card(s) compared to the credit limits are two of the most important ways you can boost your scores and get a better deal on a lending product.
You should also think twice before closing older credit card accounts or lines of credit. Lenders making credit decisions like to see an established history of credit use, and the length of your credit history is figured into your credit score. So in general, the longer you can show you've been using credit the better. Striking the right balance is key, so when in doubt, a reputable credit counseling service can help.
Check your credit reports for accuracy. A credit report is a compilation of how you have been paying your credit card bills, loans, and selected other debts. By law, you are entitled to at least one free copy of your report from each of the nationwide credit bureaus every 12 months. To order your free credit report from the three major credit bureaus (Experian, Equifax, and TransUnion), visit AnnualCreditReport.com.
Be sure to go through your reports carefully to identify errors, such as loan or credit card accounts in your name that you did not authorize (and are likely to be fraudulent) or incorrect payment histories or account balances. Some mistakes can significantly lower your credit scores, which lenders often use in deciding on loan applications and interest rates.
"It's best to order copies of your credit report from each of the three main credit bureaus because an error that appears on one report might not appear on another," said Heather St. Germain, a Senior Consumer Affairs Specialist at the FDIC. "That way, if the bank you eventually apply to only uses one of your three reports, and it's one with an error, you'll have an opportunity to get that corrected before you apply."
If you do find an error on your free annual credit report from a credit bureau, contact the company to dispute the information. Once a credit bureau receives your complaint, it has 45 days to finish its investigation. Generally, consumers can file disputes with the credit bureau online, by phone, or through the mail. A credit counseling service can help here, too. You may also contact the creditor directly because it can provide updated or corrected information to the credit bureau at your request.
Sometimes consumers have difficulty ensuring that erroneous information is corrected or removed from their credit reports. If you've tried to resolve the issue on your own without success, you can turn to the appropriate federal regulator for help.
Shop around. Before submitting an application, you should research the terms and conditions of different loans and credit cards offered by your bank and a few competitors. Think about the type of loan you need (for example, a fixed rate loan or an adjustable rate loan) and be realistic about what you can afford. Know the fees that may be assessed and what would trigger them.
Keep in mind that a loan or credit card may seem like a good deal on the surface, but a closer look at the fine print may reveal that it is not the best option for you. One of the most important things to remember: be clear on whether an attractive interest rate being advertised is locked in or if it's an introductory offer that may increase in the future.
Also, be aware that when you apply for a loan or a credit card, a record of that inquiry will show up on your credit report. "Because too many inquires may hurt your credit score, it's best to only submit applications for credit products that you think will meet your needs," said St. Germain.