As the new year rolls halfway through its second month, it might be a good time to look at your credit situation. If you find your current credit scores lacking, you may want to find some ways you can improve your credit in the coming year.
MSN Money writes about some ways you can improve your credit, and boils their advice down to 7 great moves you can make in this new year:
- Scour your credit reports: Dispute any accounts that aren't yours or any negative entries that are more than seven years old (or 10 years in case of bankruptcy). Also make sure there aren't any red flags for identity theft including accounts you didn't open, or unpaid charges on old accounts. Check out the new site called Credit Karma for free credit score reports, or check out the government's website for your free annual credit reports.
- Don't be late: Skipping even a single payment can hurt your credit score. Make sure all your accounts are paid on time, and consider setting up automatic payments.
- Watch your balances: The less of your credit lines that you use, the better. Try not to use more than 30% of your credit card limits at any time during the month; using 10% or less is even better.
- Don't close accounts: Fair Isaac has made it clear that closing accounts can never help a classic FICO score and may hurt it. With FICO 08, that's even truer. The new scoring formula wants to see evidence that you are actively and responsibly using credit.
- Keep your accounts active: Consider keeping your oldest and highest-limit cards active by charging something to them each month (making sure to pay the balance off in full, of course). This can demonstrate that you are responsible in using and managing your credit.
- Piggyback the right way: You can benefit from someone else's good credit, but be careful because someone else's bad credit can hurt yours as well.
- Consider an installment loan: There are two main types of credit: revolving accounts that allow you to build up and pay down balances, and installment loans that typically have fixed payments that require you to pay down your balance over time. Credit cards and lines of credit are examples of revolving accounts, while auto loans and mortgages are considered installment loans. The FICO formula has always rewarded folks who had and successfully managed both types, which is why getting an installment loan was often recommended as a way for people with troubled credit to rehabilitate their scores. That doesn't mean you should march out and get a loan you don't need. Loans you've already paid off will continue to help your scores as long as they're still on your credit reports, and many lenders continue to report closed installment accounts for 10 years.
I feel like I should add a proviso here at the end, and ask a question. Should you really be that concerned about building your credit? Why not instead start saving up and paying cash for the things you buy and cutting up your credit cards? You'll spend less money, and you won't put yourself in a position where you're becoming a slave to debt!