When it comes to New Year’s resolutions, money matters are one of the top-five areas people hope to improve. Perhaps this is the year you’ve decided to take a stab at improving your financial situation. Many people who make a financial year-end resolution address two areas of general finance – cut spending and save more. And while I’m sure you’d agree these are the basics that we all could improve on, if you have a poor credit score, you might want to make it your top priority.
Information on how you manage money is collected by the credit reporting agencies, which is then used to come up with your credit score. Your score effects how lenders and other financial institutions view your ability to get a loan or line of credit. Your credit history can make or break the dreams you have of buying your own home, furthering your education or any number of life situations that require a bank’s approval. If your scores are above 760, you’re probably already getting the best rates. If they’re anywhere below that mark, though, they could stand some improvement. Generally, credit score are configured using a weighted composite average, giving you an idea on areas that will have the most impact.
- 35% – Payment History
- 30% – Amount Owed
- 15% – Length of Credit History
- 10% – Types of Credit/Diversity of Accounts
- 10% – New Accounts
I’ve compiled a list of money management tips that begin with actions that will have the quickest impact to those that will take some time. While there is no magic trick or snap of the fingers that will produce immediate results, with persistence and a positive attitude, you will be working your way to an improved score. Don’t make the mistake of thinking the longer goals can be ignored, they show behavioral factors, like how well you stick to your commitments that are important for lenders to see. Each is worth your effort.
- Errors and Discrepancies
This is the fastest way to potentially improve your score and an important habit every consumer should establish. Thoroughly go over all major credit reports with a fine-toothed comb, looking for discrepancies that could be erroneously reflecting a poor image of your credit history. A legitimate debt that shows an incorrect balance, a paid account that continues to reflect a balance or a discharged account from a bankruptcy that is reported as open are examples of things that need to be corrected. Even such innocent appearing mistakes as multiple addresses can mean trouble, as lenders frown on people who frequently move. Request that every error be resolved. Many consumers can vouch for an increase in their score of upwards of 50 points just by cleaning up their credit reports.
- Timely Payments for Credit and Non-credit Accounts
At the top of the list for every consumer, whether you’re a seasoned borrower or newbie, of ways to improve your credit score is the habit of consistently paying ALL bills on time. Don’t be confused by the term ‘credit’ and assume it only means bank loans. Expenses like cell phones and rent are considered and reported to the credit reporting agencies and are just as important to your credit history, as they reflect your responsible or irresponsible behavior.
- Charge and Pay
This tip is a bit tricky and will require discipline and time but will pay off in an increased score. Use all of your credit card accounts for small purchases that can be paid in full each month. Charge your necessities and pay off every card balance immediately. The more you are able to demonstrate your skill at money management this way, the quicker your score will rise.
- Pay Down Debt
By working down overall debt, you’ll be reducing your debt-to-credit limit ratio (credit utilization). Your goal should be to have less than 30 percent of your allowable credit limit in use. Ditch the cards and the temptation to use them by putting them in an inconvenient, out-of-the-way place. Consider transferring high interest credit card balances to a zero or low APR credit card and make payments that are above the minimum requirement.
- Account Limits
If you have a decent score and long payment history and just need to bump it up a bit, you might want to consider requesting an increase in your credit limit – but only if you can handle the additional credit responsibly. By doing so, you will be improving your credit utilization even further. If you are applying for new credit to help improve your score, go for an installment loan, especially if you don’t already have one. Never close old accounts but use them on occasion to continue to receive the benefit of the credit limit on your reports and to prevent the issuer from closing the account.
Don’t become discouraged, if your score doesn’t jump by leaps and bounds. The progression may be slow but it will be constant. Continue to maintain a positive attitude as you learn knew habits and you’ll be rewarded over time.
A staff writer at ASAPCreditCard.com, Noreen Ruth is a regular contributor to a wide variety of financial-related blogs and websites. She specializes in credit and debt-related issues, and provides useful information to help consumers choose the right credit cards and make prudent financial decisions. Follow her regular posts on the ASAP Credit Card Blog to stay up-to-date with the latest credit card news, reviews, information and more.”