As many Americans savor the last few weeks of summer, it’s time to get ready for year-end tax planning and special purchases. Maybe you’re thinking about surprising your spouse by parking a brand new car in the driveway, complete with a bow on top. Or you might finally be ready to place a down payment on the new home you’ve been eyeing. Either way, you’ll need a strong credit score to make either of those dreams come true. Follow these five steps to get your credit history cleaned up, and you’ll avoid some nasty surprises during the holiday season.
Learn All of Your Credit Scores
Recent changes to federal law make it easier than ever to get your hands on a copy of your credit reports. However, you can only get your credit score for free if you’ve been turned down for a job, a place to live, or a credit card because of your score. Even then, at least four separate companies maintain their own versions of credit scoring systems. Making sure your credit reports contain only accurate information can help prevent a low score, no matter what system your prospective lender uses. MyFICO.com offers access to the original FICO score, while other credit bureaus can sell you reports containing their versions of your score. If you’re launching a campaign to improve your credit, don’t be surprised if it takes a few months before you see your credit score improve.
Spread Out Credit Card Balances
You may have never missed a credit card minimum payment in your life, but credit scoring models actually emphasize a trend you might not be tracking: credit utilization. That’s the percentage of all the credit available to you that you actually use. Most bureaus average out your utilization across all of your accounts, including car and home loans. If you just bought a new car or settled on a mortgage, you’ll want to keep your credit card balances very low to offset your high utilization. Other companies find the revolving account with the highest utilization and apply that percentage to your entire credit profile. That gas card with a $300 limit could end up hurting your score if you’ve got a $250 balance. In both cases, keeping every credit card account you manage below 50% of its credit line can help you earn a higher credit score.
Make Automatic, Regular Credit Card Purchases
The last two years of account activity influence your credit score the most. But if you’re not using a card, your bank could stop reporting your responsible behavior, costing you some points. In addition, many lenders now charge inactivity fees if you fail to use a card after six months. Because closing a credit card account can cause a short term dip in your credit score, consider using each of your cards to manage a small, recurring charge. For instance, many utility companies now offer credit card bill payment options. If you automatically charge those bills to your credit card and send your utility payments to your lender instead, you’re creating positive churn on your account.
Ask Your Credit Card Company for a Goodwill Adjustment
Nobody’s perfect, and it’s easy to let a bill slip. However, a missed credit card payment can seriously hurt your credit score for up to two years. If it’s a one-time event and you have a good history with your credit card issuer, talk to their customer service team about a “goodwill adjustment.” You’ll usually only get one shot at this, and you may even need to return the favor by signing up for a special offer. But if you’re planning on a new home or car loan in the next few months, this quick boost to your credit score can be worth asking for help.
Knock Negative Items from Your Credit Reports
Americans often worry about identity theft, but dings on your credit report usually result from simple clerical errors. You won’t know if a lender has you confused with another customer until you check your credit reports, and a wrong entry can delay your new credit card or personal loan from processing. Each of the three major credit bureaus runs its own resolution service, allowing you to dispute inaccuracies whenever you see them. Making this a quarterly habit can prevent double-digit drops in your credit score.
It’s easy to get overwhelmed by the credit repair process, especially if you’re trying to fix someone else’s mistakes. Remember that credit bureaus aren’t making personal judgments about you. If you take control of managing your credit history, you can also control your credit score. Think of this process like a financial oil change, and it will become far less frustrating.