10 Ways to Improve Your Credit in 2019

March 1, 2019 By , , , ,

Is 2019 the year you want to make improvements to your credit profile and potentially your credit score? We’ve come up with ten ways you can work toward that goal:

  • Know what you owe

You are eligible to obtain your credit report for free every year at AnnualCreditReport.com. Federal law gives you the right to one free credit report per year from each of the three reporting agencies. Some states allow you free reports more than once per year, so check with your state to see if you are eligible for more.

To make the most of the three reports, you can spread them out over the year (i.e. January, May, and September, then start again the next January). This helps you to see your reports at intervals that will keep you informed as to changes or updates you’ve made since the last report. Each time you get a report, review it in detail to ensure everything is accurate and actually belongs to you. If you find any mistakes, you can dispute them. Errors are more common than you’d think, so this is definitely a worthwhile use of your time.

  • Know what’s important to your score

There are 5 factors involved with calculating your credit score: Payment history, credit utilization, length of credit history, how much new credit you have, and what types of credit you have. The most important factor in your credit score is payment history. A whopping 35 percent of your score comes from this one category. If you haven’t been doing this already, make sure 2019 is the year you pay all your bills on time, every single time. To make this easier, you can sign up for bill pay through your bank and set up payments to automatically come out of your account at set intervals throughout the month. This way you’ll be less likely to forget to mail a check or lose the bill in the mountain of paperwork on your counter at home.

  • Seek out your score

Many credit cards and websites offer you free access to check your credit scores. If you have access to these, be sure to utilize this service. The free credit report law only applies to credit reports, not credit scores. If you don’t have access to a free score via a credit card or other credit monitoring service, you’ll have to pay for the score. If you’re planning a purchase that requires a specific score, such as an auto or home loan, paying for your score can be a worthwhile expense. You should look at your score about six months in advance of when you plan to make the purchase, in order to accommodate a timeline for any corrections that may be needed to improve your score or remove errors on your report.

  • Learn how to boost your score

If you’re looking to add some points to your score, the most common area that’s overlooked is the credit mix. This scoring factor is worth about 15 percent of your overall score and can make a difference. Credit mix is the variety of accounts you have. A mix of installment and revolving debt is ideal. Installment debt is something with a fixed payment and a balance that goes down upon each payment, such as a car loan, furniture loan, or most mortgage accounts. Revolving debt is debt where the balance can increase or decrease, and there is a minimum payment option, or you can pay off the full balance as you choose. The ability to handle both fixed and revolving debts is an indicator of stable financial health.

  • Exercise caution in deciding when you need to apply for credit and when you don’t

You should exercise caution when it comes to opening up new accounts. 10 percent of your score comes from new credit. In addition, every time you apply for credit, there is a small hit to your score because of a hard inquiry., Hard inquiries occur when a lender checks a consumer’s credit report, which creates a small negative impact on the consumer’s credit score. According to creditcards.com “an occasional hard inquiry has only a small negative impact on a credit score. What hurts a credit score most are multiple hard inquiries over a long period, which the credit scoring algorithms treat with suspicion, since they could signal hard times have befallen the borrower.”  If you’re shopping for a car or home loan, don’t worry: the credit scoring models will consider multiple loan inquiries together as one if they happen over a brief period of time.

  • Know how old your accounts are and whether or not they’re active

Your credit history or length of credit accounts makes up 15 percent of your credit score. The age of your oldest accounts is important, so you should be careful about closing accounts you don’t use much since a longer credit history can count toward extra points on your score. Some creditors will close accounts due to non-use, so you should consider using the card for essential purchases like gas or groceries. When the bill comes, you can pay it in full. This keeps the card active, and paying it in full ensures you’re not adding to your overall credit card debt.

  • Know what not to do

This scenario might seem familiar: your friend or relative comes to you for help, saying they need a co-signer on their loan. They swear up and down that they’ll be responsible for the payment and you won’t have to worry about it. Should you do it? It’s understandable to want to help a friend or family member, but you have to be aware that it will affect your credit records. You need to be prepared to monitor whether or not payments are being made, and you also need to recognize that should something happen to that person, you’ll have to take on that debt yourself to avoid negatively impacting your credit history and score. Typically the reason you’d be asked to co-sign for someone is because someone who makes loans for a living concluded that there’s some factor which indicates the primary applicant may not be able to make the payments. You should keep that in mind when you decide whether or not you want to put your credit reputation on the line.

  • Monitor your card balances

Weighing in at a hefty 30 percent, credit utilization falls closely behind payment history in importance to your overall score. Credit utilization is the combination of your total amount of debts, and how much is on each account relative to the account credit limit. There’s a common belief that you should keep your credit utilization below 30 percent, but that’s a misconception. Your score won’t fall at 31 percent and it won’t automatically increase at 29 percent. 30 percent is not a magic number. A better rule of thumb is the lower the utilization, the better. Consumers with the highest credit scores keep their utilization in the 5 to 10 percent range. You should check your credit card statement regularly to find out what your credit limit is, as it can change without you being notified.

  • Be aware of where you stand financially

A great credit profile and high credit scores start with managing your payments. This means you need to have the money available to make your payments on time. Even though it seems like a hassle, creating a budget is the best way to ensure your financial stability. Figure out your income and expenses, and see what’s left over after the basics are accounted for. If you’ve felt like you can’t figure out where all your money goes each month, you should track your expenses for a while. This can be an eye-opening activity and is a good first step toward good credit. Perhaps you didn’t realize that your gourmet coffee habit was adding up to over $100 per month. You could start making your coffee at home and apply that extra $100 toward lowering your revolving credit balances.

  • Identify your financial goals for 2019

The most important step toward improving your credit profile is to establish clear goals and the plan that will help you achieve those goals. Picture trying to go on a road trip with zero plan in mind for your destination or your route. You could literally wind up anywhere, and you wouldn’t be prepared for anything! The simple act of establishing goals and a plan of execution will make it much easier for you to be successful. Whether your goal is to buy a new vehicle, buy a house, or just get a better deal on a new credit card, your credit score will have a big impact on your end result. Use the steps outlined above to help you prosper.

If you have questions about what factors impact your credit score, or about anything related to the home-buying process, fill out the form below, or contact us!

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