How to Improve Your Credit Score in the New Year
'How do you plan on improving your credit score in 2013?'
I posted this question to the always reliable and active Credit Talk Forum the other day, and was met with a few responses from some loyal contributors that have been around the forum a lot longer than I have.
Junior member mijd plans on keeping his debt utilization low, while senior member Heather L. echoed that same sentiment: "I need to pay down my credit cards to lower my utilization."
These two have the right idea when it comes to improving your credit in the new year. Why? Because as we've mentioned numerous times on Creditnet, keeping your debt utilization - i.e., the amount of credit you use in relation to the total amount of credit available to you - below 30% is crucial to building your credit score.
Fair Isaac, the developers behind your FICO score, have said that keeping your debt utilization low makes up nearly a third of your credit score. And while getting under 30% in 2013 is a great goal to begin with, ideally you want your credit utilization to be under 10%.
So, what's the best way to lower your credit utilization?
Well, the easy answer is to make bigger payments on your credit card bill each month. But with snowballing interest fees making it hard to put a real dent in that credit card balance, we admit that lowering your utilization can be a lengthy (and at times expensive) endeavor. That's why if you've never transferred your balance to a new, 0% interest credit card, the new year might be the best time to do it.
Balance transfers are great because they eliminate interest fees attached to your bill each month for anywhere from six to 18 months. Apply for a 0% balance transfer credit card, transfer as much debt as you can to your new card without hurdling that 30% ratio (the available credit on your new card), and come up with a payback plan to lower that ratio each and every month.
Trust us - when you eliminate interest fees from your credit card bill each month, you'll see a sharp drop in your balance and you'll feel better knowing you're not wasting money on interest fees.
While lowering your credit utilization is a great long-term practice to eliminate debt and improve your credit score, at least one Credit Talk member was more focused on disputing old debts and collections.
Junior member mindcrime said he would "send validation and dispute letters to go after old collections."
If you've ever been to our Forum - and we highly recommend you check it out, if you haven't - then you know that it's a treasure trove for advice on disputing old and inaccurate collections. If you've never written a dispute before, or are put off by the process, Creditnet offers free sample dispute letters and debt validation letters. (See the link below.)
Your payment history makes up 35% of your credit score and is the most important factor lenders consider when deciding if you're a trustworthy loan applicant. If you have an old unsettled debt wreaking havoc on your credit score, or an inaccurate blemish on your credit report that you're not aware of, make disputing these statements a priority in the coming year.
Here's a brief summary on how to get it done.
First, get a copy of your credit report. By law, each consumer is allotted one free credit report per year. You can also order your credit report at any time, along with credit monitoring tools for a small monthly fee. Order your credit report and begin combing through it to make sure all information is correct.
If something looks incorrect, then it's time to dispute. And if you've never done this before, take a look at our complete selection of sample letters to determine what kind of letter fits your situation best. Once you send a letter to the credit bureau reporting the inaccurate info, they have by law 30 days to respond to the debt validation.
Here's an example of a dispute letter to expedite the process. (Consider it a holiday gift from Creditnet!)
We understand the process can be intimidating; seriously, who likes confrontation? But disputing inaccurate information is a necessary step towards improving your credit score in 2013, and we highly recommend knowing exactly what's on your credit report. Definitely consider ordering and researching your credit report in the coming year.
2013 is a new year. We love New Year's resolutions because they give us all a chance to hit the reset button. Get serious about improving your credit score with these simple steps, and check back in with us any time for more advice on how to improve your credit, New Year's resolution or otherwise.