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"I resolve to make 2017 the year I stop being intimidated by my credit score and start taking control of it!"
Sure, it may not be your typical resolution. It won't help you eat better, lose weight, get organized, spend more time with your family or travel the world, for example. However, when it comes to helping you save more money or reduce your debts -- two more of the most common New Year's resolutions -- it can have an enormous impact.
The truth is that bad credit can kill your finances. You'll pay far higher interest rates on car loans, mortgages and credit cards, if you can even get one. Your credit card is likely to include a higher APR, more fees, a lower credit limit and less lucrative rewards. Your card issuer will also be less likely to waive a fee if you make a mistake. In short, the better your credit score, the better lenders will treat you.
If you don't have perfect credit, don't despair. Even though many people see credit scoring as this confusing, unknowable force, it is actually easier to understand and less complicated than you'd think, and a few right moves can make a big difference.
Here are a few moves that can help your credit in the New Year:
Whoa, whoa, whoa! I thought you said these were "simple" moves?
This is simple. People tend to overthink it. Achieving a good-to-great credit score really comes down to doing three things repeatedly for years:
1. Paying your bills on time every time
2. Keeping your balances low
3. Not applying for too much credit too often
That's basically it. Do those three things over and over again and your credit should be just fine.
Of course, actually doing these things is often far from simple -- especially No. 2 -- but knowing what is expected of you isn't. Just keep those three items in mind, and you'll have a basic road map to get where you want to go.
Increase monthly payments ... even just a little.
Job No. 1 for anyone with a credit card is to pay the balance off at the end of every month. Unfortunately, that just may not be possible all the time, so the focus becomes determining how much you can afford to pay. If you haven't taken the time recently to calculate exactly what you can afford to put toward your credit card bill, the first of the year is a good time to do so.
Paying off your debt faster doesn't just increase your available cash. It helps your credit score by dramatically reducing your "utilization rate" -- how much debt you have compared to available credit. Your utilization rate is the second-most important factor in credit scoring formulas (behind your payment history). Experts have long recommended keeping your utilization below 30 percent (say, a $3,000 balance on a $10,000 credit limit card), but the lower you can go, the better.
Don't think that you have to make a huge jump in your payments. (Though if you can, you should.) Even a small increase applied over time will make a real difference in lowering your balance. As it does, your score should move higher.
Get your credit reports and make sure they don't include any errors.
Few things can boost your credit more quickly and more significantly than fixing any errors on your credit reports, but you can't fix your credit report unless you look at it -- and far too few people ever do.
Federal law guarantees you one free credit report each year from each of the three major credit bureaus -- Experian, Equifax and TransUnion. The best, no-strings way to get them is through AnnualCreditReport.com, the official, government-mandated free-credit-report site. You can either pull them all at once or get them separately at different points in the year, but you definitely should get all of them at some point each year. Their contents will be somewhat different from each other, but shouldn't be drastically so. (Remember, however, that you won't get a free credit score from AnnualCreditReport.com, only a free credit report. You'll have to go elsewhere -- for example, Discover will give you a free FICO score even if you're not a Discover cardholder, and My.CreditCards.com offers you a free VantageScore plus credit monitoring and other tools -- but there are plenty of free options out there.)
Once you have them, review each one carefully and check for any inaccuracies. For example, there might be a late payment that you didn't actually pay late, or an account that you never signed up for. If you find something that doesn't look right, tell the bureau in writing. They'll then have 30 days to investigate the claim, and if the information can't be verified, the bureau must remove it and let you know.
It isn't always that simple, however. It can take a few letters and phone calls to make it happen, so be persistent and don't take no for an answer.
Set up automatic payments.
Missing a payment can clobber your credit, so let technology keep that from happening.
Set up automatic payments online through your bank to ensure that you make at least the minimum payment to your card on time every month. That makes your monthly to-do list shorter and helps you avoid making one of the biggest credit mistakes you can make.
Remember: Don't settle for just paying the minimum. That's asking for trouble. Instead figure out a monthly amount over the minimum that works for you, and then bump it up from time to time if you find yourself with a little extra money in a given month.
Take the first step ... and then another ... and another.
The most important step you can take toward improving your credit is the first one. Without that, nothing can ever be accomplished. Once you've taken that first step, though, it's important to do whatever you can to keep moving forward.
Enlist your friends or family as a cheering section.
Treat yourself when you've hit a milestone. (Just don't go too crazy and take your eye off the ball.)
Tweak your battle plan if it needs tweaking.
Above all, do something. Keep taking those steps. It won't always be easy, but once you get where you want to go -- good credit, no debt -- you won't believe just what a difference you've made in your life.