Were you denied a personal loan last year? You wouldn’t be the only one. A new study shows that a whopping 42 percent of Americans were denied a financial product in 2022.

The reason? The poll, which surveyed over 1,000 people, points to bad credit.

Many of the biggest banks have a minimum score they require from borrowers, and if you fall below it, you may be denied — even in an emergency.

While there are alternative online loans available to fill that gap, it’s less stressful if you never have to worry about rejection. Here’s what you can do to improve your credit history — whether you’re looking to borrow a personal loan now or sometime in the future.

Always Pay Your Bills on Time

Paying your bills on time makes up 35% of your FICO score, which is the most popular credit scoring model used today. It’s worth the most out of all the factors, so it’s important you always hit your due dates.

Use a budget to make sure you have enough cash for these bills on their due date. Program your phone to send you reminders about your bills. Or, even better, set up automatic payments so that you never forget to pay a bill again.

Ask for Late Payment Forgiveness

Life can get in the way of your budget sometimes. You can get caught up with your job, look after loved ones, or simply forget to pay your bills.

If this is the first time you’ve missed a payment, you might qualify for late payment forgiveness. This can remove your late payment from your history so that it doesn’t affect your score.

Not all creditors will offer late payment forgiveness, so you’ll have to reach out and formally ask for forgiveness. Here’s a template for a goodwill letter to help you get started.

Pay Down Your Credit Cards and Lines of Credit

The next biggest factor in your score is your credit utilization ratio. This ratio tells you how much of your credit limit you use, shown as a percentage.

Unlike most tests, you don’t want to earn 100% on your utilization ratio. This would mean you’re maxing out these accounts.

Instead, you should aim to use less than 30% of your limits at any time. Ideally, you should get your ratio below 10%. Stop relying on the minimum payment and use your budget to pay off debt.

Request a Credit Limit Increase

Paying off debt can take years, depending on how much you owe. If you don’t have a lot of expendable cash to go towards big payments, you might be stuck with a higher ratio for longer than you like.

But your usage is only one side of the equation. Your limits also play a role in this ratio, too. By increasing the credit limit on a revolving account, you have a shortcut to reducing your utilization ratio.

For example, if you have $500 on a card with a $1,000 limit, your ratio is 50%. But if you can increase your limit to $1,500, your ratio will automatically drop to 33%.

Ask your creditor about increasing your limits. This can help you manage your ratio as you commit to paying down your debts.

Bottom Line:

If you were rejected for a financial product last year, commit to better credit habits in 2023. Eventually, these tips will help you add positive entries that might just clinch a loan for you in the future.