When the holly-jolly dust settles, the transition from the holidays back to “business-as-usual” can be jarring. If your credit card balances are high from holiday shopping or you find yourself short of cash because you put so much toward gifts in December, make a New Year’s resolution to whip your finances and credit into shape by year’s end. Here’s where to start on the road to financial fitness.
Your Credit Limits vs. How Much You Owe
Divide the total combined balances on your credit cards by your total credit limits. This is your credit utilization ratio, and the lower it is, the better. One way to pump up your credit score in the new year is to decrease that percentage. Pay off as much of those outstanding balances as possible. Payments made by the account’s statement date — not necessarily its due date — should reflect on your score as soon as the creditor reports the activity.
Make Timely Payments
If you don’t have a credit card yet, now’s the time to apply — well before the holidays roll around again. If you don’t yet have a credit history and find it hard to get approved, a secured card can get you started. It allows you to put down a deposit with the lender to use the card. Your credit limit will usually equal the amount of money you’ve deposited. Make regular and timely payments to begin building a good credit history and credit score.
If you already have credit cards but your payment history is dragging down your score, dedicate the new year to meticulously making every payment on time. Even six months of on-time payments can improve your credit score. If you make more than minimum payments to whittle down your credit utilization ratio in the process, that’s even better.
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Check for Inaccuracies on Your Credit Report
Get a copy of your credit report, and go over it with a fine-toothed comb. You’re entitled to one free credit report every year. A creditor may have reported that you made a payment late when you didn’t. Look for accounts that you never took out or don’t recognize. You can dispute this kind of inaccurate information, and getting it removed from your credit report should improve your score.
Don’t Close Accounts
Resist closing accounts, even if they have zero balances because you haven’t used the card in forever. The longevity of your credit history affects your score — the longer the better. Even if an older credit card is collecting dust in your wallet, keeping the account open works in your favor. Don’t close an account that has a balance because the balance will still be there while the credit limit goes away, and this will affect your credit utilization ratio.