By AJ Smith
The new year is a time for resolutions, new beginnings and (hopefully) a higher credit score. It may be the last thing you are thinking about right now, but your credit score can affect your mortgage, your job potential and, ultimately, your life. So now is the time to start thinking about, monitoring and improving it. Make 2015 the year you improve your credit score with these five tips.
1. Check Your Current Reports & Scores
Before you try to improve your credit profile, find out where you stand. (You can get two of your credit scores free every month on Credit.com.) It’s also smart to check your credit reports from each of the three credit reporting agencies. (You can get these free once a year under federal law.) The information used to calculate your credit scores comes from these credit reports, so it is important to be sure they are accurate. If you see information that is not accurate, dispute it.
2. Reduce Your Debt
Your debt-to-credit ratio is a major factor in your credit score — the smaller the percentage, the better. It’s best to go no higher than 20% to 25%. So if your debt is higher than that, make it your goal for the new year to lower it. Look for ways to reduce your monthly spending or up your monthly income so you can put more money toward your debts. Total your debts and get a pay-down plan in place that you can comfortably follow. As your balances decrease, your score should rise.
3. Raise Your Limits
Credit agencies look at individual card limits as well as your overall level of credit. You can contact your credit card issuer about increasing your limit. Boosting your limits can reduce your debt usage ratio. It’s important to be sure you do not use the new, higher limit as an excuse to start spending more.
4. Pay on Time
Paying your monthly bills on time can help improve your credit score. If you have trouble with this, set up reminders or work with your bank to establish an automatic bill payment system. Your payment record accounts for approximately 35% of the score, so consistently paying on time can make a difference.
5. Consider Keeping Old Cards Open
Canceling a credit card you’ve had for a long time can potentially hurt your scores. If it’s a card you no longer use much, you might want to keep it active by using it for a recurring charge such as a utility bill. In a similar vein, it’s a good idea to only apply and open new credit cards as needed.
In truth, the best way to improve your credit score is by being a smart and careful consumer — be on the lookout for ways you could sink your score and avoid them. Make payments on time, understand credit information, check your credit reports regularly, and do your best to pay off debt and keep your balances low.