You have ambitious financial goals for 2023. Perhaps they include purchasing a home or car, or obtaining a new travel rewards credit card to assist fund your next vacation. You may have overlooked an important aspect of these plans: increasing your credit score.
A higher credit score can increase your access to credit and reduce the cost of borrowing. For instance, having a score of 700 as opposed to 650 could result in an auto loan with an interest rate of 4.9% as opposed to 7.25%.
So, what can you do to improve your score? Here are some expert-recommended strategies for enhancing credit in the new year.
1. Repay holiday debts
When the holidays are gone, you may be saddled with debt from eating, travel, and present purchases (on top of regular bills, of course).
If missed payments or huge debt continue into the new year, your credit score could be negatively affected. Payment history (whether or not you pay your bills on time) and credit utilization (the amount of credit you’re using relative to your limit) are the two most influential elements in determining your credit score.
How interest rate spikes affect credit card debt 02:02
Therefore, develop a plan to reduce your vacation debt. Jeff Arevalo, a financial wellness specialist at GreenPath, a nonprofit credit counseling service in Farmington Hills, Michigan, recommends analyzing your account records to determine exactly how much you owe and how much you can afford to spend for payback.
“Unfortunately, if you simply pay the minimums, it will take you longer to pay off your debts. Since interest rates have climbed, paying minimums is no longer a successful strategy “Arevalo remarked. He says that understanding your budget allows you to determine if you can afford to make more than the minimum payments on your obligations. Perhaps you received an extra December salary or a Christmas bonus that you can apply to your debt.
According to Todd Christensen, education manager at Money Fit, a nonprofit debt relief agency in Boise, Idaho, one technique to consider is paying above the minimums on your most recently created accounts. This method, which Christensen refers to as “debt landslide,” can build credit, according to Christensen, because FICO and VantageScore give more weight to actions on new and recently used accounts.
“Paying down balances on new accounts can help establish credit more quickly than paying down balances on all accounts,” Christensen explained.
Protect your credit score in 2023 by setting up automatic payments or payment reminders to assist you in paying your bills on time.
Do not seek for credit too frequently.
Multiple credit applications in a short period of time can raise a red flag and lower your score. With each application, a hard inquiry will be performed on your credit, which may cause your score to decrease by a few points.
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Kate Mielitz, a qualified financial counselor in Olympia, Washington, stated, “If I apply for a credit card once or twice a month, the credit score algorithm may perceive me as desperate.” “Desperation is not an attractive quality in credit.”
If a lender perceives you to be a risk, they may reject your application or offer you less favorable terms, such as high interest rates. Consider carefully before applying, particularly if you intend to make a credit-related choice, such as applying for a mortgage, within the next several months.
3. Raise your credit limit
Request that issuers boost the credit limits on your existing accounts. As long as your expenditure doesn’t increase, higher restrictions will reduce your use. To improve your credit score, experts recommend maintaining your utilization below 30 percent.
4. Account for rent and utilities payments
Because rent and utility payments are often not included in credit reports, not all credit scoring models include them in credit scores. However, if you do not have a credit history, there are services you can utilize to record on-time payments and establish credit. Some rent reporting services, such as Piata, are complimentary. Others may assess you or your landlord a fee.
Most medical debt to be removed from credit score, according to MoneyWatch, at 5:41
“Fees are the most important thing to look out for,” Christensen added. “They should also report to one or more credit reporting agencies.”
Experian Boost is a free function provided by Experian, one of the three major credit agencies, that allows you to report rent, utility, and streaming service payments made from your linked bank accounts.
5. Conduct a credit report review
Credit reports contain information about your credit history. The information on your reports is used by scoring organizations to determine your scores, so staying on top of them is vital. If a mistake on your credit report is pulling down your score, such as a late payment that you actually made on time, you should take swift action to dispute the error with the relevant credit bureau.
“Some individuals are concerned that the report is excessively lengthy and contains several acronyms and similar terms. But, like with other things in life, I believe it becomes less daunting over time “Arevalo stated.
Make it a practice to check your credit report frequently. Through the end of 2023, AnnualCreditReport.com will provide free weekly reports.
This piece was supplied by the personal finance website NerdWallet to The Associated Press. Lauren Schwahn is a writer at NerdWallet.
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