A strong credit score is a key factor in securing a personal loan with favourable terms. Whether you’re looking to finance a home renovation, consolidate debt, or cover an emergency expense, lenders heavily rely on your credit score to assess your creditworthiness. If your score isn’t where it needs to be, improving it can significantly enhance your chances of getting approved for a personal loan. 

Here are 5 ways to boost your credit score and increase your chances of loan approval:

1. Pay Down Existing Debt

One of the most impactful ways to improve your credit score is by reducing your existing debt. Your credit utilization ratio— the amount of credit you're using relative to your total available credit—plays a significant role in your score. Lenders prefer to see a low credit utilization ratio, ideally below 30%.

How to Reduce Your Credit Utilization Ratio

• Pay off credit card balances as much as possible.

• Avoid maxing out credit cards, even if you pay them off in full each month.

• Ask for a credit limit increase, but only if you can avoid increasing your spending. This will give you more available credit and lower your utilization ratio.

2. Make Payments on Time

Your payment history is the single most important factor in your credit score, making up 35% of the total score. Even one missed or late payment can cause a significant drop in your credit rating. To boost your score, make sure you are paying all your bills on time, including credit cards, loans, and utilities.

 Tips for Timely Payments

• Set up automatic payments for credit cards, loans, and utility bills to ensure that you never miss a payment.

• Use calendar reminders for bill due dates if automatic payments aren’t an option.

• If you’re struggling to make a payment, contact your lender immediately to work out a payment plan.

3. Avoid New Credit Inquiries

When you apply for new credit, such as a credit card or loan, the lender performs a "hard inquiry" on your credit report. Too many hard inquiries in a short period can negatively impact your credit score. To improve your score and position yourself for personal loan approval, it’s best to avoid applying for new credit while you’re working to raise your score.

Key Points About Credit Inquiries

• A hard inquiry can lower your score by a few points, and multiple inquiries in a short time can add up.

• Limit the number of new credit accounts you open before applying for a personal loan.

• Soft inquiries, such as checking your own credit report, do not affect your score.

4. Check Your Credit Report for Errors

Errors on your credit report can drag down your score without you even realizing it. Incorrect information, such as late payments you didn’t make or accounts you never opened, can hurt your creditworthiness. Regularly checking your credit report for discrepancies and fixing any errors can give your score a boost.

How to Check for Errors and Dispute Them

• Request a free copy of your credit report from major credit bureaus (Experian, TransUnion, and Equifax) at least once a year.

• Look for inaccuracies such as wrong account balances, late payments that weren’t late, or fraudulent accounts.

• If you find an error, file a dispute with the credit bureau to have the information corrected.

5. Keep Older Credit Accounts Open

Length of credit history is another important factor in determining your credit score. Closing old credit accounts, especially those in good standing, can shorten the average age of your credit accounts and lower your score. To improve your credit score, it’s generally better to keep old accounts open, even if you don’t use them regularly.

The Benefits of Keeping Older Accounts

• Longer credit history shows lenders that you have experience managing credit over time.

• Keeping older accounts open improves your credit utilization ratio, as it keeps your total available credit higher.

• Only consider closing accounts with high annual fees if they no longer serve your needs.

Conclusion

Boosting your credit score takes time, but by following these five strategies—paying down debt, making timely payments, avoiding new inquiries, checking your credit report for errors, and keeping old accounts open—you can significantly improve your score. A higher credit score not only increases your chances of personal loan approval but also helps you secure better interest rates and terms.