It’s 2018…Fix Your Credit!
The beginning of the year is a great time to check your credit reports and scores to see if they need a bit of a shape up. Your credit has a huge influence over your financial life. Credit not only impacts your ability to qualify for financing, but it can also affect your job prospects, your insurance premiums, and deposit requirements.
Good credit will genuinely make your life easier. As a result, working to keep your credit in the best shape possible is a wise goal which can pay off with some huge financial benefits.
The Game Plan
Wanting to improve your credit and knowing how to improve your credit are two different things. Some of this is going to come across as tough love. But, some of you will need to hear this.
- Take an Honest Look at Your Credit Reports
Step one toward improving your credit involves taking an honest look at where your credit stands. In order to accomplish this you will need to review a copy of all 3 of your credit reports from Equifax, TransUnion, and Experian. You can claim a free copy of your credit reports at AnnualCreditReport.com once every 12 months. There are a variety of other places to get your legitimate credit reports. The data should be the same regardless.
Expert Tip: Don’t forget to check all 3 of your credit reports for errors. Reviewing just 1 or 2 of your reports is not going to be enough since the credit reports will likely contain different information. If you discover any mistakes on your reports remember that you have the right to dispute them with the credit reporting agencies.
- Tackle Credit Card Balances
You might not realize it, but incurring large balances on your credit card accounts can be damaging your credit scores, even if you are making your monthly payments on time. Credit scoring models like FICO and VantageScore focus on your revolving utilization ratio – the relationship between your credit card limits and balances. When these balances begin to climb on your credit reports, your revolving utilization ratio spikes. This can result in a credit score decrease. Thankfully this credit score damage can also be reversed whenever you begin to pay those account balances back down.
Expert Tip: Overspending is one of the primary factors which leads to credit card debt. If you find yourself consistently charging more on your credit cards than you can afford to pay off in a given month then it may be time to consider establishing a monthly budget or giving your existing budget an overhaul.
Ethical Hack: Try making several payments during the month before your statement is actually cut. This will result in a lower balance on your statement, which is the same amount reported to the credit bureaus. You’ll still need to make a payment before the due date, unless you pay the balance in full before the statement is cut. If you wait to make one large payment by the due date then the larger balance will have already been reported to the credit bureaus, thus possibly lowering your scores.
- Stop Making Late Payments
Seriously, you get a 30-day grace period before your credit reports are damaged. In order for a 30-day late payment to be reported to the credit bureaus you have to be 30 days past the due date. For a credit card with a 21 day grace period, that would mean you’re 51 days past the date your statement was cut.
Few actions will tank your credit scores faster than making late payments on your credit obligations. Frequent late payments or more serious late payments (60 days late, 90 days late, etc.) will only compound your credit problems even further. If your goal is to improve your credit scores this year then late payments must become completely off limits. Even an accidental slip up could derail your credit improvement efforts quick, fast, and in a hurry.
Expert Tip: Consider scheduling automatic payments. You can schedule automatic drafts from your checking account, for example, to cover your minimum credit card payments each month. Of course you should pay more than the minimum each month (see tip #2), but by scheduling automatic drafts you might just protect your credit reports from late payments in the event that you accidentally forget to make a payment one month.