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We’re just one month into the New Year. If you’ve already broken some (or all) of your New Year’s resolutions, don’t despair. Most people do! In fact, statistics say 80 % of all people break their New Year’s resolutions by January 20. If you’re still going to the gym everyday, watching what you eat, or sticking to your budget, you’re ahead of the curve.
It’s never too late, though, to start improving your credit. To give you that extra boost of motivation – to help you stick to your resolution or simply turn over a new credit leaf – we offer some of our best credit tips.
It’s true that lenders have gotten even more strict in regard to giving out credit, minimum payments have risen, and so have interest rates (on credit cards – not so for savings accounts). Even with this bleak financial picture, the basics of smart money management remain the same. Consider these tips a reminder – or a jumpstart to make 2010 the year you achieve financial independence with no debt.
This is the most significant factor in your credit history, making up 35 percent of your total FICO score, the score that tells lenders whether you are a good credit risk or not. Late payments that are under 30 days late may not be reported to the credit bureaus, but this is at the discretion of the lender. It’s better not to take chances. Just one late payment can reduce your credit score by as much as 50 points, and it can take 6 to 12 months of on-time payments to bring it back up.
It sounds obvious, but good things happen when you pay down your revolving debt. First, you’ll save money on finance charges. Your minimum payment will go down, leaving you with more cash in your pocket. Most importantly, the lower your debt to available credit ratio, the higher your credit score.
This factor accounts for 30 % of your credit score, so it’s important to pay your credit cards on time, and work on getting the balances as close to zero as possible.
We have a bunch of credit card reviews that make it easy to find a 0% APR credit card if you have good to excellent credit. Have a credit card balance that just won’t go away? Consider transferring the balance to a 0% APR card, and watch the debt drop dramatically with each payment.
The key, of course, is to stop using your old, higher interest card. Don’t close it out; that will negatively impact your credit score. Cut it up if you must, or freeze it in a block of ice. Just don’t use it to rack up more debt.
Can’t get a lower interest card? Use a website like Mint.com to track all your credit card debt. Make a plan to pay off the highest interest credit card first. Put as much money as you can toward that card each month, while still making on-time minimum payments on your other card. When you’ve paid off your highest-interest card, move on to the next card. This is called the “snowball plan” to reduce debt – and it works. Watching balances drop rapidly provides incentive to keep going.
Make a plan right now to contact your credit card companies and request a lower interest rate. Many times, they will oblige for customers with a good credit history who have made their payments on time. I recently got my interest rate on one card reduced significantly when I agreed to sign up for automatic bill pay.