January is a time for setting some goals for the new year, and a great way to improve your finances in 2022 is to work on your credit as a new year’s resolution. Whether you’re improving an existing score or starting from scratch, a better credit score will open up more opportunities in the future.
What’s your credit score?
Your score falls on a scale that goes from 300 to 850 and is typically updated once a month. The first thing you should do is get a snapshot of your current credit score and history to identify the areas you should work on to improve your score.
You can visit AnnualCreditReport.com to request a free copy of your credit reports from the three credit bureaus, Equifax, TransUnion and Experian. Review each document carefully because the information can differ from one credit bureau to another.
If you spot any inconsistencies on these reports, file a dispute with the corresponding credit bureau because addressing mistakes is a quick and easy way to increase your score.
Next, you should keep track of your score with apps like Credit Karma, myFICO, or CreditWise if you’re a Capital One customer.
You should also register for online accounts with the different credit bureaus. While some features require a paid membership, you can take some steps to improve your score for free, such as connecting your bank account to your credit file to have recurring utility payments count toward your credit score.
Take control of your credit payments and utilization ratio
The biggest factor that influences your credit score is your payment history, which can represent as much as 35% of your score.
Stay on top of your loan and credit card payments and set up automated payments if you can. If your credit card or loan issuer doesn’t offer this option, your bank should give you the possibility of scheduling recurring payments.
If you have any accounts past their due date, reach out to your creditors to set up a payment plan. Prioritize your past due accounts because a late payment can hurt your score by up to 180 points.
Another key to achieving a good credit score is to optimize your credit utilization ratio. This factor can determine up to 30% of your FICO score. Your credit utilization ratio indicates the percentage of available revolving credit that you’re currently using. Ideally, you should use 30% or less of your available credit. You can get closer to this target percentage by paying off high balances or requesting a credit line increase.
Look for new credit opportunities
Lenders want to see that you have plenty of experience with managing different lines of credit. It’s important to establish a diverse credit mix as well as some long-standing accounts.
While opening too many new credit lines in a short period of time can hurt your score, opening a new credit line and managing it responsibly will help you build credit.
You should review different options and choose one that makes sense for your financial situation. If you’re struggling with your credit card payments, transferring your balance to a new card with a lower APR can be a smart move.
Individuals with a limited history could benefit from taking out a loan and paying it off quickly. And if you don’t have much credit history or have a poor credit score, a secured credit card can be a good place to start.
Are you ready for the next step?
A strong credit score will help you secure a more competitive rate when applying for a mortgage besides qualifying for a larger loan. First Centennial Mortgage can help you review your options and guide you as you prepare to take this major financial step. Contact us to learn more about how you can boost your credit score on your journey to homeownership.
Note: First Centennial Mortgage and its Loan Officers are not licensed credit counselors. You should seek independent information and advice before taking any course of action.