Are you ready for a reset on 2020? You aren’t alone.
If this year wasn’t the kindest to your credit, there are plenty of steps you can take to get it back on the right track.
Check out a few tips to improve your credit you might want to tackle in 2021.
Stay in tune with your credit report and credit score
The first step you can take to begin proactively managing your credit? Regularly checking your credit reports and credit scores.
A quick refresher: There are three primary credit reporting agencies (CRAs) — Experian, TransUnion, and Equifax. Each CRA collects information from lenders and creditors — otherwise known as data furnishers — to add to your credit report. Data furnishers don’t always report information to all or any of them, so each credit report may be different. This means it’s important to check all three credit reports regularly, along with your credit scores (which may also vary).
Upturn gives you access to your TransUnion credit report and credit score and provides updates every 10 days. In addition, between now and April 2021, you can access each of your three credit reports weekly directly from Experian, Equifax, and TransUnion or at AnnualCreditReport.com. You may also be able to access them, along with credit scores, from other free services. [Learn more here.]
Dispute credit report errors
If you have errors on your credit report (which may be more common than you think), it’s possible these errors are negatively affecting your credit score such that you aren’t getting the interest rates and credit offers you might otherwise be eligible for. (Wondering what you can dispute? Read this.)
The good news is, you don’t have to be stuck with credit report errors forever. As Nolo.com explains, under the Fair Credit Reporting Act (FCRA), you can dispute errors directly with the CRA reporting the information (and/or the data furnisher, depending on which makes more sense). From there, CRAs generally take 30-45 days or less to investigate your dispute and confirm the accuracy of the information with the data furnisher. If they find the information to be inaccurate, it should be corrected or deleted.
Need help navigating the process? You can dispute items on your TransUnion credit report directly from the app, all for free. (Sign up here.)
Improve your payment history
Your payment history is one of the most influential factors in determining your credit score, making up 35% of your FICO score calculation and considered “moderately influential” in calculating your VantageScore 4.0 ( a new version of Vantage’s credit scoring model). (Remember, you have different credit scores depending on the scoring company and the scoring model used to calculate your score.)
If you have had trouble in the past making on-time payments, it’s important to improve your record going forward. The good news is, payments are reported on a rolling basis, meaning late payments should fall off your credit report once enough time has passed (usually seven years). So start a record of on-time payments beginning now.
With COVID-19’s astronomical impact on jobs and income, you may be struggling to keep up with payments. In that case, make sure you maintain an open line of communication with your creditors and take advantage of any deferment or forbearance programs they may offer. If you are in a deferment or forbearance program, generally missed payments aren’t reported to CRAs.
Increase your credit limit and pay down existing debt
Another important factor in calculating your credit score is your credit utilization, or the amount of credit you’ve used vs. the amount of credit available to you. This applies to revolving credit accounts — like credit cards, for instance — that allow you to use credit, make a payment, and use again. The general rule of thumb is to keep your credit utilization below 30% (but the lower the better).
It’s also important to note, some credit scoring models will take two credit utilization ratios into consideration — your overall ratio (the ratio of your usage of all of your revolving accounts combined and the total amount of revolving credit available to you) and the same ratio for each individual account. In other words, it’s important to pay attention to — and reduce — both.
There are generally two ways to reduce your credit utilization and potentially boost your credit score:
- Pay down existing debt on your revolving credit accounts
Working to pay down existing debt on revolving accounts should increase your available credit and lower your utilization ratio.
- Increase your credit limit
If your creditor approves you for a higher credit limit, you can potentially lower your credit utilization ratio for that one account as well as your overall utilization ratio. However, other individual accounts will remain unaffected.
Make sure your credit is secure
What might be worse than changing bad habits and cleaning up your credit? Cleaning up a credit mess left by credit fraud or identity theft.
If you want to protect yourself, here are some things you might consider doing.
- Be aware of card skimmers.
These sneaky devices can be attached to regular card readers at places like ATMs and gas stations, but steal credit or debit card information once swiped. If the card reader is loose or larger than normal, it may be a skimmer.
- Pay attention to your wi-fi connection.
Keep your personal network private and, if you must use public wi-fi, try to use a known network, visit secure sites (https, not http), and consider using a VPN (virtual private network).
- Stay on top of data breaches.
If your information was exposed during a data breach you may want to consider taking extra steps — like changing your passwords — to keep your personal and financial information private.
- Change up your passwords.
Are all of your passwords the same across several sites? Or are they predictable? Consider using a password generator to make them varied and harder to guess.
- Try a virtual credit card.
If you want to add an extra layer of security when you make online purchases, a virtual credit card can provide a temporary credit card number to be used one time or within a certain time frame before expiring.
- Set a credit fraud alert, credit freeze, or credit lock.
- A credit fraud alert encourages potential creditors to take extra steps in confirming your identity before issuing credit in your name.
- A credit freeze blocks potential creditors from viewing your credit report to extend credit, until the freeze is lifted. This is generally for those who have already been the victim of identity theft or fraud.
- A credit lock is similar to a credit freeze, but is easier to lift and may be a service you have to pay CRAs for.
Keep credit applications in check
Thinking about buying a new house or car in 2021? Or are you looking for a credit card or personal loan? Whatever credit products you might be interested in, it’s important to know how these applications might impact your credit.
First things first: There are two types of credit inquiries you’ll likely encounter — a soft credit inquiry that should have no impact on your credit score and a hard credit inquiry which may drop your score an average of 5 points, according to FICO.
A soft credit inquiry can occur a few ways — when you check your credit or when a financial institution sends you a preapproval offer, for instance. A hard credit inquiry, on the other hand, often occurs when you apply for new credit (like a loan or credit card).
While one hard inquiry won’t necessarily have a major impact on your credit, multiple hard credit inquiries spread apart in a relatively short amount of time may indicate that you are either strapped financially or have a habit of overspending.
But there is an exception. If you are rate shopping and receive multiple hard inquiries for the same type of credit — like a car loan, for instance — within a 14- 45-day period (depending on the credit scoring model), these could be treated as just one hard credit inquiry.
The bottom line? Be discerning about how and how often you apply for new credit.
Increase your credit knowledge
From apartment rentals to personal loans and a variety of things in between, your credit score can play a significant role in what you may or may not be approved for. Unfortunately, it can be hard to proactively manage or improve your credit when it all feels like a mystery.
But understanding a few things — like the basics about credit reports and credit scores or how credit and debt are related — can go a long way in adjusting habits and making changes. Whether you’re getting bite-sized info on the Upturn Credit app, or in-depth information on our blog, we have the info to help.
Here’s to making 2021 the best year for your credit.