Most Americans like to make New Year's resolutions involving numbers. You may want to lose weight, increase your savings, or boost your stock portfolio. If you're planning on buying a house, financing a car, or purchasing insurance in the next year, your credit score is one more number you'll want to track on your resolution list. Use these five steps to help yourself improve your credit in the next year.
Check Your Credit Scores
Even the free credit report mandated by law doesn't give you the three-digit score than lenders use to quickly evaluate your credit history. While you can check your "true" FICO score my visiting the MyFICO.com Web site, all of the major credit bureaus offer their own version of the scoring system. A report with one bureau that doesn't appear in your other two credit files could artificially depress that report's score, so you'll want to check all three. Most of the official credit bureau websites allow you to subscribe to a year's worth of monthly score updates for an annual fee. Unlike your weight, which can change week-to-week, it can sometimes take months for changes in your credit history to reflect on your credit report. Be patient: remember that this is a year-long effort.
Balance Out Your Credit Cards
Credit utilization, total balances to total available credit, is one of the factors that impacts your credit score the most. Scoring models can look at utilization in one of two ways. Some models average out your credit lines across all your accounts, arriving at an overall percentage. Others assign more weight to credit cards with higher utilization, skewing your number. If you can make balance transfers between existing cards without incurring hefty transaction fees, follow the expert advice of re-balancing your accounts, so that each card has low utilization. Avoid opening up new accounts during this time, since the application process can skew your credit scores lower.
Use Credit Cards for Bill Payments
Most credit card companies report the last 24 months of account activity. If you have an open line of credit that you haven't used for a while, you could be hurting your credit score. Not using your account can also lead to your account being closed in as little as six months in some cases which can lower you credit score as well. Automating a monthly bill payment through your credit card, like an electric or cable bill, might seem like financial sleight of hand. But even this small amount of activity on a formerly dormant credit card can boost your credit scores.
Ask Credit Card Issuers for Goodwill Adjustments
Everybody makes mistakes, but a single late payment in the past two years can ding your credit score. If you have a strong relationship with your bank or credit card issuer and you've only had one missed deadline, you may want to consider contacting their customer service or executive relations departments to request a "goodwill adjustment." This process generally only works once per lender, but can improve your credit score significantly.
Dispute Negative Credit Card Reports
When checking your credit report for information about your accounts, pay special attention to the names of companies. Credit card issuers sometimes make mistakes, and collections agencies frequently report negative information about consumers with similar names. Follow each credit bureau's instructions for issuing a written dispute on any trade line you don't recognize. Eliminating negative reports can cause double-digit gains to your credit scores.
Some Americans find it tough to work on their credit scores without becoming overwhelmed or emotional. Detach yourself from the feeling that credit scores make any kind of personal judgment about you. They're just numbers that you have the power to control. Staying focused and checking your credit scores every 6 months can reveal your long-term progress.
About the Author
Curtis Arnold, a nationally recognized consumer educator and advocate, has been educating consumers about credit cards since 1998. New! Curtis is the author of "How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line" (FT Press, 2008). He is also the co-author of the upcoming Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Pengiun Group USA, April 2009), a contribitor to The Ultimate Allowance (InnerWealth Publishing, 2008) and is extensively featured in 42 RulesTM for Driving Success With Books (Super Star Press, January 2009).