Whether you’re ending the year on a financial high note or are hoping to get a fresh start in 2022, there are a few steps you can take to improve your credit over the next 12 months. From clearing up reporting mistakes to eliminating your high-interest debt, below we’ll discuss five ways you can get your credit ready to ring in the new year.
Review Your Credit Report
When it comes to your credit, what you don’t know can hurt you. If you’ve missed paying off a bill or have an account in your name you don’t know about, this could be negatively impacting your credit score. By requesting a copy of your annual free credit report and ensuring that all the information on it is accurate, you’ll be able to sidestep identity fraud and ensure that your credit score is based on accurate information.
Don’t Make “No Credit” the Goal
If you’ve had a bad experience with credit in the past, it can be tempting to close your accounts and minimize your use of credit to avoid overspending. But often, no credit can be just as bad as poor credit; if you don’t have enough of a history on which to base a credit score, or if your last use of credit was several years ago, your credit report and score may suffer. While you don’t need to take out needless debt just to build your score, using one credit card and paying it off monthly (or utilizing a secured credit card) can go a long way toward improving your credit score.
Reduce High-Interest Debt
Despite rising inflation, interest rates on mortgages, auto loans, and other types of credit remain relatively low. You may be able to refinance high-interest debt to a lower interest rate or transfer credit card balances to a card that offers a 0 percent balance transfer; by reducing your interest rate, you can reduce your monthly outflows and free up cash to throw at other debts.
Avoid Closing Accounts
One of the factors that can contribute to a low credit score involves the average age of your credit accounts. Generally, the older your average accounts, the better your credit score; this means that closing older accounts can reduce your score even if your debt load hasn’t changed. Try to avoid closing out your older credit accounts, as doing so can lower the average age of your accounts and send your credit score plummeting.
Don’t Overdo It on Credit Inquiries
Another factor that contributes to your credit score involves the number of credit inquiries on your account. Each time you apply for a new mortgage, credit card, or auto loan, this generally results in a “hard pull” of your credit; more than a few of these hard pulls each year can reduce your credit score as lenders assume you’re in dire need of credit. By confining your credit inquiries to a certain period of time, you’ll be able to put them in the rearview mirror more quickly.