If your goal for the new year was to get your act together financially, then you should start by looking at your credit score.
Your credit score is the foundation of your financial identity. Most of the time, people have no idea what their credit score number is and what actions will impact it – positively or negatively – until it’s too late.
There are many things that will impact your score, but this list is a collection of some of the most common things that will hurt you and some things you can do to help it.
Keep in mind, if something is reported to the credit agencies and shows up on your credit report, it will be there for 7 years plus 180 days from the date of the missed bill.
How To Improve Your Credit Score
It’s very possible that your credit report may include errors starting from simple things like an address you didn’t live or a misspelling of your name. But there’s also a chance there are some line items on the report that don’t pertain to you but instead belong to people with similar names. There’s also a possibility of identity theft so it’s important to monitor your credit on a regular basis.
If you have too many inquiries into your credit in a short amount of time, this can also hurt your score. This includes any loans – car, home, etc. – and insurance agencies, cell phone companies and even employers can all pull your credit score.
Bank information isn’t typically reported to credit agencies but if you have overdraft protection that is tied to a line of credit, you have to make good on any overdrafts or you will hurt your credit
When it comes to paying bills
1.Pay all bills on time
This is the first and best thing you can do to improve your score over time. Paying all bills on time – from hospital bills to credit cards bills to the electric bill to parking tickets and more – will help to build and establish positive credit. If you miss a bill or are late in making a payment, understand that different companies and agencies will report this to credit organizations differently.
2.If you can’t pay on time, check into payment plans
There are some bills that you just might not be able to pay on time. For instance, large hospital bills or doctor’s bills that insurance didn’t cover may be unexpected expenses. However, you can typically arrange a payment plan for those types of bills. Specifically, for the hospital, you can usually negotiate a monthly payment plan based on what you can afford. They will do this for you without charging interest and then you won’t have a large credit card bill that you charged the payment on.
- Pay off debt rather than moving it around
Instead of shuffling debt from credit card to credit card or moving something like that hospital debt to a credit card, work on a realistic plan for paying it off. It doesn’t help you to move you the money from one spot to another. The debt is still there.
1.Apply for and open new credit cards only as needed
Don’t just open credit cards because you can. You don’t need one for every store you love or a Visa, Mastercard and Discover. Having too many open lines of credit can impact your scores just as much as not having any can impact it. Pick and choose wisely.
2.Manage current credit cards responsibly
Having credit cards and installment loans (or loans you pay monthly) will generally help build your credit. But you have to make sure that you’re making the payments to them ON TIME or, even better, paying them off within the month if you can afford to do so.
- Close cards you don’t need
While closing cards won’t automatically remove them from your credit report, you should close excess cards you may have opened. Again, you don’t want to have too many cards open – just the ones you need. HOWEVER, if you close a card that has a balance on it, that will hurt your credit
If you have had any liens on your property it will hurt your credit score and it doesn’t matter the lien amount. The lien, like all credit report line items, will stay on your credit report for 7 years but could even show up beyond that.
More than likely, everyone will experience unemployment as some point in their lives. Credit bureaus don’t know that you’re unemployed, but they do see a reduction in your income and that will impact your score.
Credit to debt ratio
Your credit to debt ratio can impact your credit score because you may be seen as not having the fund to pay back all your debt. For instance, if you make $40,000 a year, but have $20,000 in student loans, a $1,500 a month mortgage payment, a $300 a month car payment and credit card debt, then you are probably pushing you credit to debt ratio.
For more information on repairing your credit, visit Lexington Law here.
For more financial posts, click here.