Blog posted On December 22, 2021
Your credit score is one of the most important factors when it comes to applying for loans, leases, or even cell phone plans. When determining whether or not to provide you a loan or lease, most lenders will assess your credit score and credit history. The best time to try and boost your credit score is well before you plan on making any important financial moves. So, to help you prepare for next year, here are three important habits that can help boost your credit score.
According to a 2019 Bankrate survey, less than 50% of U.S. adults are “very confident” that they know their credit score. If you don’t know your credit score, then you may not realize that there are things that you would improve. A good rule of thumb is to try and check your credit reports at least a few times per year. You can access a free credit report from Equifax, Experian, and TransUnion one time per year per bureau. By checking in on your credit report every 3 to 4 months, you can get a better idea of where you are with your score and where you want to be. It’s also a good idea to check in on your credit reports before applying for a new line of credit, a loan, or lease. Each year, nearly 6,000 U.S. adults find at least one error on their credit report – which could hurt your credit score significantly. So, your first credit card goal for next year should be checking at least one of your credit scores one of your credit reports every quarter.
Once you know where you’re starting, you can get a better idea of the little goals you need to reach in order to accomplish your target credit score. It’s not all going to happen overnight. Boosting your credit score can be a long process, so it’s a good idea to make smaller, more attainable goals. Some good goals to set for yourself include paying your bills on time, keeping your debts low, and managing different types of credit. Timely bill payments represent 35% of your credit score in the FICO formula. Keeping your debts low takes up to 30% of your FICO formula, while the length of your account history makes up 15%. Your mix of credit accounts is worth 10% of your score and avoiding applying for too much credit at once fills up the last 10%. By working on each of these things every month, you should start to see your score gradually improve.
Credit utilization is a secret killer on your credit card report. Even if you pay your bills in full and on time every month, a high credit utilization rate could drag down your score. You can calculate your credit utilization by dividing how much credit you are using by your credit limit. For example, if you have a $5000 credit limit and made $4000 in credit card payments, your credit utilization of the 80%. The recommended credit utilization ratio is sub 30%. FICO says that borrowers with the best credit score often have credit utilization ratios under 10%. Some ways you can keep your credit utilization low next year is by making more than one credit card payment per month and asking for a higher credit limit.
Overall, if you check your credit score a few times a year, keep your credit utilization low, and try to gradually improve your score, you should be in a good financial position for applications next year. If you would like to explore different mortgage calculations, head to our loan calculator page.
Sources: Bankrate
