Improve Your Credit Score in 2019
The start of a new year symbolizes a new beginning. It’s an opportunity to kick bad habits and establish good ones. Eat healthier. Exercise more. Save money. Buy a house.
But did you know that only 8 percent of Americans actually keep their New Year’s resolutions? Most people set overly ambitious goals—or too many of them—and simply lose interest. Small, but meaningful lifestyle changes are more likely to succeed over the long haul.
If your resolution is to exercise more, for example, introduce one behavior that you can stick to: like walking for 30 minutes every other day. If you’re trying to eat healthier, you could start meal prepping for the week to avoid eating fast food lunches during work or school.
So if your resolution is to buy a home in 2019, or maybe even move into a new rental, why not start with the simple act of improving your credit score?
Why good credit matters
When it comes to buying a new home, good credit can be a greater asset than even your down payment. That’s because having bad credit can cost you big time in the terms of a loan. “Lenders look for a minimum credit score of around 580-600 to qualify,” says Kyle Plunkett, UMH Loan Originator. “But it’s also something you can plan for.”
Taking the time to fix your credit can end up saving you thousands of dollars in the long run. Lenders offer loans with lower interest and better payment periods if you can prove your credit worthiness.
That’s because good credit is a measure of stability. This is especially important during times of transition. Have you changed jobs in the last two years? Is some of your income “unverifiable,” either by missing tax returns or a recent pay raise that doesn’t have a paper trail? Credit is a Band-Aid for any uncertainty that might show up to lenders looking to finance your mortgage.
It’s easier to fix your credit than you think
So you know you need good credit, but how do you get there?
At first glance it seems like a daunting task. The good news is you have more control over your credit score than you might think. Your FICO credit score is really just a 3-digit number that shows how likely you are to repay debt. On-time payments and having accounts in good standing are long-term goals that take time to show on your score. But did you know it’s even possible to remove some blemishes from your credit history? This can impact your score dramatically in just 1-2 months, if done correctly.
There’s no way around the fact that it will take time to see results. But you can take the big steps right now.
Here are 10 things you can start doing, today.
1. Pull your FICO Score.
You can get free copies of your credit reports from the three main bureaus – Experian, Equifax, and TransUnion – one time per year. If you haven’t done this yet, you’ll want to do this right away, so you can identify where you have opportunities to improve your scores.
2. Do your research.
No one has ever claimed that fixing your credit is an intuitive process. You’ll want to do some research so you can understand the best avenues to take. Mint.com shows you your credit score for free, and even offers simple suggestions for improvement. Alternatively, finding just one comprehensive book or guide to use can save you a lot of headaches from conflicting information. Here are some great recommendations.
3. Make a plan.
Now that you understand the basics of credit reporting, it’s time to make a plan. Is your credit suffering because of late-payments? Focus your efforts on creating a payment strategy with active creditors that works with your income. Is your credit usage too high? Make a habit to pay for things in cash. Is your history too short, or your open accounts too low? Your plan should include small, actionable steps towards building a credit history.
4. Pay down outstanding debt.
This seems like a no-brainer, but sometimes life gets in the way. Is your credit low because of a high debt ratio? Create a new budget that allows for you to chip away at that, today.
5. Call your bank, collectors or lenders.
If your budget is just too tight to tackle your mountain of debt, don’t panic. Lenders are usually very willing to work out payment plans with creditors that can’t meet their bills for one reason or another. Pick up the phone and negotiate a payment strategy that works with your monthly budget.
6. Set up automatic payments or payment alerts.
Is your credit suffering because of late payments? Set up auto-pay on your bills, or a reoccurring calendar reminder, so that you don’t forget your payment deadlines in the future.
7. Get a secured credit card.
If your credit score is low because your credit history is young, you can fix that by opening a credit card. The best place to do this is with whichever bank you bank with, because they can easily verify your income and will be more inclined to forgive poor credit.
Ask your banker about a secured credit card. They require a cash collateral deposit, but are designed explicitly for the purpose of healing bad credit.
8. Don’t charge it. Or, do charge it.
Going shopping today? If your credit utilization ratio is high (as in, you have a lot of debt already), don’t put it on your card. If your credit utilization ratio is low, charge it to your card, and then pay off the balance on time to establish credit usage.
9. Write letters to the credit bureaus.
Do you have dings on your credit history that shouldn’t be there? You’re not alone. It’s estimated that 1 in 5 Americans have a blemish on their credit report that is inaccurate. One of the best things you can do to heal your credit is to file a dispute against derogatory marks.
This one you have to be clever about. Even though all three credit bureaus now accept online disputes, many credit professionals recommend you handle disputes in writing. This is because credit bureaus are legally required to investigate disputes within 30 days, and to wrap them up within 90, so sometimes snail mail can work in your favor. Look online for templates of correspondence, and make sure you send all disputes by certified mail, so you have a paper trail.
10. Contact a professional.
Does all of this seem a little overwhelming or time-consuming? It’s not cheating if you hire someone to help you out. If you can afford to, then simply make your credit-fixing resolution this: “I will hire a credit repair company this week.” Simple!
The key takeaway here is: no matter the state of your credit, there is a way to fix it. So take that credit score onwards and upwards into 2019!