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Have you started thinking about your resolutions for 2019? If not, you should really consider setting a financial goal for the new year. Because your credit has such a large impact on other parts of your life, (renting, applying for a mortgage, buying a car…) I recommend making smart credit habits part of your New Year’s resolution. Since I know that credit can be a bit complicated, I am going to break down 3 credit habits for you. Pick one habit to put it place or work on all three. It’s up to you.
Check Your Credit Regularly
In order to measure improvement, you need to know where you are starting from. The best way to know what you credit looks like is to check your credit. Make sure to look at your credit report and your credit score.
Because your credit score changes, you can’t check it once and then never check it again. You need to check your credit regularly. At a minimum you need to check your score once a year. You can do this at the start of the year since you are thinking about it now. Some people opt to check their score on their birthday. To check your credit go to credit.com and check your credit for free.
PS If you check your credit and find mistakes, remember that you have the right to a fair, accurate, and verified credit report. Lexington Law is available to help you fight for your right to a report that accurately reflects your credit history.
Pay All Of Your Bills On Time
The biggest single component of your credit score is your payment history. It accounts for 35% of your score! A single missed payment stays on your credit report for 7 YEARS! On top of that the missed payment can dramatically reduce your credit score. That means you might have a higher interest rate on a new line of credit or have to pay a larger deposit for your dream apartment.
So how do you keep from missing a payment? You make sure to make your payment on time, every month. An easy way to do this is to set up automatic payments. Honestly it relieves so much pressure to set up automatic payment. You don’t have to worry about accidentally forgetting. Also most cards will have a cut off time for payments to be received. If you pay at 5:01 when the payment was due at 5:00, you will likely get a late payment fee. Just an added FYI.
Pay Down Any Balances You Might Have
Your credit utilization ratio (CUR) makes up around 30% of your score. To get an idea of your CUR take your balance over your total credit. For example, if you have $500 of charges on an account with a credit limit of $1000, you are looking at a ratio of 50%. You want your CUR to be as low as possible. Most recommend not going above 30% but 10% is even better.
The best way to improve your CUR is to pay down any balances. If you are paying only the monthly minimum, it will take a long time to pay down your balance. Want to know just how long? Check out this payment calculator. Instead of paying the minimum, make a plan on how you are going to pay down your balance and stick to it.
Which of these smart credit habits are you going to use to improve your credit? Do you have other financial resolutions for next year? Let me know in the comments!