January 7, 2021
Shawn Lane
Consumer Credit Expert
New Year’s resolutions have a bad track record. Improve your Credit!
They tend to fail, not through lack of effort, but because they’re usually too broad and overly ambitious. It’s difficult to formulate a strategy for a vaguely defined goal, and it’s even more difficult to stay motivated when your goal is unrealistic.
That’s why financial goals are perfect New Year’s resolutions. Committing to something like an increase in your credit score is measurable, actionable and completely realistic. Improving your finances is also one of the best ways to improve your quality of life.
The best part is, you don’t even have to come up with an action plan on your own – because we’ve already done the work for you. All you have to do is stick to the resolutions outlined below.
Resolution #1: Pay your bills on time
On-time payments make up 35% of your credit score and are the biggest single factor taken into account. The best thing you can do to improve your credit is to pay your bills on time.
The easiest way to make payments on time is to sign up for automatic payments through your bill, credit card and loan providers. To do this, go to the bill or loan provider’s website and click on the automatic payments section. Then, link your bank account to the bill or loan provider. You’ll have to decide when you want the payment to go through, either before or on the due date. When that day comes, the provider will automatically withdraw the amount due from your bank account.
It may take a few days to finalize this change with the bank and bill provider, but the system should work easily once it’s complete. You should still monitor your accounts every month to ensure the payments have gone through.
The only potential problem with this strategy is the possibility of not having enough money in your bank account when the automatic payment goes through.
One of two things will happen in this situation: You’ll either overdraw your account and possibly be charged an overdraft fee by the bank, or the bank will refuse the payment and you’ll be charged a returned payment fee by the loan or bill provider. Both fees range from $25 to $40.
If you don’t want to enroll in automatic payments, you can sign up to receive reminders about upcoming due dates from your providers. You can also set recurring reminders in your phone or online calendar system.
Resolution #2: Pay off credit card debt to lower your utilization
Your credit utilization percentage is the second most important component in determining your credit score and makes up 30% of your score. Credit utilization percentage reflects how much of a credit card’s total credit limit you’re currently using.
Here’s how it works. Let’s say you have a $3,000 balance on a credit card with a $5,000 total credit limit. In this case, your credit utilization percentage is 60%, while the ideal credit utilization percentage should be 10% or less. Your credit score will take a big hit because of the 60% utilization.
If you can pay off that credit card debt and lower your utilization, you’ll improve your score.
Resolution #3: Avoid opening new accounts
When you apply for a new credit account, it creates a hard inquiry on your credit report. Each hard inquiry can drag down your credit score. How many points will depend on your credit history, but it could impact your credit score by as much as 55 points.
Plus, opening a new account decreases the average age of your credit history, which makes up 15% of your credit score. If you already have a short credit history, you should open new accounts sparingly and open when necessary.
Resolution #4: Check your credit report regularly
Viewing your credit report is one of the best ways to catch issues that can affect your credit score. There as many ways to view your credit report for free. You can currently view your credit report for free once a week at AnnualCreditReport.com (until April 2021). If you have never looked at your credit report, there is no better time to start than now. Review your credit report for accuracy and address any issues you may find.
Better still is having a credit monitoring subscription that gives you all 3 credit bureau reports side-by-side along with your credit scores. It will provide alerts which will notify you of any activity on your credit report, such as new credit applications, new accounts opened, new personal information added, and any new derogatory reporting. You can sign up for a 7-day trial of the credit monitoring service that we recommended here for just $1.
Credit Monitoring – What it is and why we need it! CLICK HERE to access expert advice on credit repair