New Year’s Eve is right around the corner, and with every new year comes a new set of goals or resolutions. So if you’ve written “Get Out of Debt” or “Improve My Credit Score” on a post-it note somewhere and can’t think of how to do it, here are some concrete steps you can take in the coming months to achieve your goals.
1. Monitor Your Credit Reports
The first step towards fixing, building, or maintaining your credit score is monitoring your credit reports by going over them every six months. This is the best way to prevent credit-tanking situations like identity theft or mistaken credit reporting. The credit bureaus are far from perfect and far more prone to mistakes than you might think: 5% of consumers found inaccurate information on their credit reports in 2013, and 1 in 20 saw their score jump more than 25 points once the issue was resolved.
You are entitled to one free credit report from each of the credit bureaus once every 12 months, which you can order through AnnualCreditReport.com. Now is a great time to review your credit reports, as fraudulent activity is most likely to occur during and after the holiday season, and don’t be afraid to dispute any information which seems inaccurate or misleading! Learn more about your rights as a consumer with credit.
2. Curb Excessive Spending and Debt
If you’ve reviewed your credit reports and found them free of mistakes, but your credit score is still quite lower than you are comfortable with, the problem might be with your spending habits. How many credit cards do you own? Do you pay your bills on time? How much debt have you accumulated on each card?
If you have more than 3 cards and have trouble keeping track of them, that might be a sign of trouble. A cacophony of credit cards is harder to keep track of than just one or two at a time. Figure out which cards have the largest balances and the highest interest rates, and start settling the debt on those accounts immediately by always paying at least the minimum fee on-time, or even early. Early and on-time payments will prevent your interest rate from hiking and will help you avoid any pesky late-payment fees.
Once your cards are settled—which may take some time, so be patient—figure out which cards you can cut and which you can keep. Credit cards are a great tool to build and improve credit when used responsibly, but overspending, late payments, and poor credit utilization will put you on the fast track to a bad credit score. Learn more about responsible credit usage.
3. Budget Your Expenses
Paying off your debts on-time and avoiding unnecessary expenses may require an additional step: creating a budget. Budgeting will add structure to your spending and create efficiency by forcing you to think before you swipe. If you have trouble managing or saving money, controlling spending, or paying off your debts, budgeting is a great way to start cultivating the good habits you need to overcome your financial problems.
Add-up your reliable sources of income and start subtracting fixed expenses, like rent, taxes, credit card balances, insurance payments, and any sources of debt. These are the things you need to pay every month on-time and in the same amount to prevent accumulating any more debt. Next, add up your variable expenses—like groceries, gas, water, electricity—and see where you can shave off a few dollars. Could you go to Aldi instead of Whole Foods to save money on groceries? Could you cut out any cable bills you don’t need, or a Spotify account you aren’t utilizing? This is the area where you have the most to gain with a little sacrifice, so don’t be afraid to cut out the Starbucks morning routine or the gym membership you’ve had for six months and used maybe twice! Learn more about budgeting.
Whether you’re crafting a budget, cutting back on credit card spending, or reviewing your credit reports regularly, you’re already the habits which will help you stay out of debt and perhaps improve your credit score! It’s the little things that matter when it comes to credit, so don’t be discouraged if it takes a long time or it feels like you’re not doing enough. If you have a plan and you’re willing to stick to it, you’ll be well on your way towards achieving your credit goals for the next year, and reaping the benefits for the rest of your life.