Add Credit Score Boost to Your New Year's Resolutions
Self-improvement is on the minds of many for 2018, whether it be spending more time with family and friends, getting fit and healthy, learning a new hobby or boosting credit scores.
That last one isn't on your list of resolutions, eh?
Keep reading to decide whether you should make it a priority.
Why boost your credit score?
"Improving your credit score is important for a number of reasons," says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. "The higher your credit score, the more affordable your borrowing options are going to be."
You pay less for credit cards, mortgages and car loans when your credit score is higher.
"If you have a lower credit score, you are perceived as a risk to potential lenders and that might turn into higher interest rates, higher fees and fewer borrowing options," McClary says. "It's important to have a healthy credit score, as healthy as you can possibly achieve."
Know your score and get your report in shape
While the average FICO score in spring 2017 was 700, nearly 40 percent of the American population qualified as a "high achiever" with a FICO score of 750 or above, according to a recent FICO study.
"You want to be somewhere near the top," McClary says.
If you don't know your FICO score, find out immediately. Many major credit card companies include it on their monthly statements and several websites offer them (CreditKarma.com, CreditSesame.com) for free. It's also available for purchase on MyFICO.com.
Be sure to regularly check your credit reports, as errors are common. Get a free copy from the three credit reporting bureaus once a year via AnnualCreditReport.com. There is no penalty for disputing errors and, if successful, it's a fast way to boost your score. The Federal Trade Commission has additional info on how to dispute credit errors.
More on-time payments, less credit utilization
To boost a damaged credit score, you essentially need to do the same things as you would to build and maintain a healthy score: Pay your bills on time and don't overborrow.
In fact, your payment history and your credit utilization ratio account for the bulk of your credit score, almost 70 percent.
Of the two, paying your bills on time is the biggest factor determining your credit score. This includes not just credit card bills but car and student loans, rent, utilities, phone bills and so on. Set up payment reminders or enroll in automatic payments if remembering bills is a problem.
Also consider keeping card balances low, preferably less than 30 percent of your assigned credit limit. Maxed-out credit cards are a no-no. Always work at paying down your debt.
"The closer you get to your assigned credit limit, the riskier you look to lenders," McClary says. "Even if you're paying on time."
Other factors contributing to your credit score include your credit history (length of time you've held your accounts), new credit (many new accounts opened in a short amount of time can raise a red flag) and your mix of credit (credit cards, retail cards, mortgages, etc.).
So, what now?
Let's say you're in credit trouble. Once you begin a concerted effort to clear up delinquencies, pay off any judgements against you and then start fresh — diligently paying all your bills on time and keeping your credit balances low — how long will it be before you can expect to see an improvement in your credit score?
"As my economics professor used to say, 'Here-in lies the rub,'" McClary says. "It's not a quick fix."
Aside from successfully disputing errors on your credit report, which could result in a correction within 60 days, a noticeable improvement could take about a year, McClary says.
If you're really struggling with credit issues, enlisting a family member with a good credit history to add you as an authorized user on a credit card could help improve your credit score. Or, if you don't have any credit yet, start with a secured credit card to build enough credit to eventually qualify for an unsecured card.
Beware of companies who guarantee immediate results in helping you repair your credit. McClary says many of those are scams.
For professional help with repairing your credit, turn to an accredited nonprofit credit counseling agency. Seeking help doesn't negatively impact your credit score. You'll participate in credit- and budget-counseling sessions, gain an understanding of your financial situation and create a debt management plan.
"You have to stick to it, but the good news is you will have the advice and support of a financial professional who can help you deal with any challenges that come up," McClary says.
Michele DiGirolamo is a former longtime reporter for United Press International and a freelance writer for MoneyGeek.com.
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