Want to improve your credit health this upcoming year? Don't just settle for a general statement like "I want good credit." Instead, come up with smaller and more specific resolutions that will help you reach that higher goal. Here are five smart resolutions that could improve your credit situation in 2015:
1. Monitor your credit regularly.
While monitoring your credit may not be the most thrilling resolution, doing so is a great way to learn what kind of actions affect your score and may even help you catch fraud early. CNN Money is calling 2014 "the year of the hack," further highlighting the importance of keeping a close eye on your credit. Lenders typically report to the bureaus once a month, so checking up on your credit regularly is a good goal.
How: You're legally allowed one free copy of each of your three credit reports every year from AnnualCreditReport.com. To keep an eye on your credit year-round, try not to pull all your reports at the same time, unless you're checking them for the first time. Instead, spread out your requests -- perhaps pulling a different report every four months.
In addition, take advantage of free credit monitoring services, such as Credit Karma, Credit Sesame and Quizzle, that will allow you to monitor your score and credit report information more frequently than once a year. Using these services won't hurt your credit score (or your wallet) and may help you catch important changes to your credit file early.
2. Dispute errors on your credit report.
The importance of keeping your credit report accurate cannot be overstated. Your credit score is one of the most important numbers that will ever be attached to your name. It's based off information from your report, so it's worth your time to make sure each detail accurately represents you.
How: After you've pulled your credit report and scrutinized it for errors, the dispute process is fairly simple. First, you'll need to gather proof that supports your dispute. Then, write a letter explaining what's wrong, and send it to the credit bureau with your marked-up credit report and supporting documents. If the dispute is successful, the bureau will report back to you and send you a copy of your updated report. If it's not successful, you can always try again.
3. Reduce your credit card utilization.
Maxing out your credit cards isn't just bad news for your checking account -- doing so could also kill your credit score. Filling your card with charges doesn't look good to potential lenders, as you're more likely to have trouble repaying that money than a person who uses cards sparingly. This is why your credit card utilization, or your total balances divided by your total credit limits, is weighted heavily in many scoring models and can negatively affect your score if it gets too high.
How: Luckily, there are a few different ways to lower your utilization rate. First, you can make more than one credit card payment a month to ensure that your balance doesn't get too high. Second, try spreading out your purchases on different cards to prevent having high utilization on a single card. Another option: If your credit card provider hasn't increased your limit in a while and you have a good record, you could ask for an increase. Lastly, if your utilization rate is above 30 percent, consider swiping your cards less, whether this involves using more cash or spending less money in general. All these options are great ways to lower your credit utilization and potentially improve your credit health.
4. Pay all your bills on time.
Since your credit score basically tells lenders how likely you are to repay future debts, your on-time payment percentage is usually the most important factor in calculating your score. Therefore, if you care about your credit, it's best to do everything you can to get each payment in on time.
How: Have a history of forgetting to make payments? Consider opting into automatic payments, or try setting up email or text alerts to remind you when your billing due date draws near -- whatever is necessary to get those bills paid on time.
5. Save for emergencies.
Not only can saving for emergencies reduce a lot of potential stress, but it may also save your credit score. By having an emergency fund, you may be able to avoid maxing out your credit cards or taking out dangerous loans that could end up hurting your credit health.
How: There are many smart savings programs you could try. For example, unless you're spending 100 percent of your income on necessities, prioritize saving by paying yourself first -- take a set percentage or amount of your paycheck and put it directly into a savings account before you're tempted to spend it. Alternatively, consider a different strategy like saving every $5 bill or starting off small and gradually saving more and more each month. You know yourself best -- pick a strategy that works for you and start saving! Eventually, you probably won't even miss that money and will be glad to have that fund in an emergency situation or when you retire.
The Bottom Line: The beginning of the year is a great time to work on improving any aspect of your life. Just keep in mind that resolutions are only good and helpful if you're able to carry them out. If you're looking to improve your credit health in 2015, choose one or more of the above resolutions, make them specific to your personal situation, grab an accountability partner if you think you'll need encouragement to stay on track and start working toward those goals! Good luck!
