Now is a good time to reevaluate your financial habits and consider what’s working (or what’s not). Making some small changes can have a big impact, especially where your credit is concerned.
If you’re looking for ways to improve your credit score over the next 12 months and beyond, here are some of the best financial habits to adopt now.
1. Automate bill payments
Putting bills on autopilot can take the stress out of keeping up with due dates. You can simply schedule bills to be paid from your bank account each month. No late fees or late payments to worry about.
Why it’s a good credit habit:
Under the FICO credit scoring model, payment history accounts for 35% of your overall score. VantagesScores also use payment history for score calculations. Paying on time consistently can help add points to your score.
2. Pay down credit card balances
If you have credit card debt, make this year the year you commit to paying it down. The more debt you eliminate, the less you’ll pay in interest charges. And the more money you can add back to your budget to save or apply to other financial goals.
Why it’s a good credit habit:
After payment history, your credit utilization ratio makes up 30% of your FICO credit score. The lower your balances are compared to your card limits, the better it is for your score.
3. Keep older credit cards active
Though you may have several credit cards in your wallet, you may only use one or two. But it’s important to keep all of your cards active throughout the year to avoid inactivity fees or account closures.
Why it’s it a good credit habit:
Credit age makes up 15% of your FICO scores. Having older credit card accounts open in your name can improve your credit age and overall score. Closing down cards, on the other hand, can lower your credit age and shrink your credit utilization ratio.
4. Consider taking out a personal loan
Personal loans can be used for a variety of expenses, from consolidating debt to making home improvements. A personal loan is also a good option to consider when you have an unexpected financial emergency.
Why it’s a good credit habit:
Ten percent of your FICO score calculation is based on your credit mix or the types of credit you’re using. Having a personal loan to go along with your credit cards shows lenders that you know how to use different types of credit responsibly.
5. Be selective when applying for new credit
It can be tempting to apply for a new credit card if you receive an attractive bonus offer in the mail but don’t commit without doing your research first. Opening too many credit cards could put you at risk of running up debt and it can also have credit score impacts.
Why it’s a good credit habit:
The final 10% of your FICO score is based on how often you apply for new credit. Each inquiry can ding your score by a few points if it triggers a hard credit pull. So you’re better off only applying for new credit when you truly need it.
6. Check credit card statements regularly
It’s tempting to toss credit card statements in the trash without scanning them closely but that can be a mistake. Ideally, you should check your statements each month so you know where your balance stands, how much you’re paying in interest and what new charges were made.
Why it’s a good credit habit:
Checking credit card statements can help you spot any potentially suspicious activity, such as unauthorized purchases. That could be a red flag for identity theft, which could harm your credit score.
7. Check your credit reports regularly
Your credit reports contain all the relevant information that’s used to generate your credit scores. That includes information about your credit card balances and limits, loan balances, payment history, credit age, inquiries for new credit and derogatory items, such as collection accounts.
Why it’s a good credit habit:
Reviewing your credit reports regularly is an opportunity to see what’s helping your credit score and what may be hurting it. It also makes it easier to spot errors that are dragging down your score so you can dispute them with the appropriate credit bureau.
Building good credit habits can take time
Good credit matters for several reasons. It can make getting approved for loans or lines of credit easier. You may need good credit to get a cellphone or utility services or lease an apartment. And better scores can translate to lower interest rates when you borrow.
As you get to work instilling good credit habits in the new year, remember that it can take time to see the results in your credit score. But each day can put you one step closer to your perfect credit score goals.
