A New Year, A Fresh Start

With the arrival of 2017, most of us turn our thoughts to our finances… be it the fact that all those Christmas bills are beginning to roll into our inbox and our mailbox, or because we’re thinking of the upcoming tax return filing deadlines, or even if we just want to get a fresh start on our credit in the months to come.  Whatever your reason for seeking that fresh, new start on your credit, there are a couple of things you’ll want to consider before you do anything else.

First and foremost, to really get a handle on your credit score, and to see what you should do to improve that score, you need to know your credit score… and not just one of those three digit numbers, either.  You need to know all three credit scores from all three credit bureaus.

Why do you need to know all three credit scores?

Believe it or not, all credit scores are not the same.  Your score can vary anywhere from a few points up to a hundred points!  And trust me, if you’re buying a house or that new car, one hundred points on your credit score can cost you a lot of money in interest (and it could even prevent you from getting that loan if they only check the one with the low score). So, instead of just knowing one credit score, you really need to know all three of them. Only when you are armed with ALL of the information will you be able to truly improve your score and get that fresh start you are working toward.

What do you do once you have your scores?

Once you have your credit scores and your full credit report, the very first thing that you’ll want to do is to study the entire report carefully.  Look for inaccuracies… not just in what you owe or who you owe, but pay attention to your personal information, your employers, your addresses, and your credit inquiries.  Identity theft doesn’t just entail someone getting a credit card in your name.  These days, identity theft stretches all the way to people stealing tax returns, taking out mortgages in other people’s names, and even stealing healthcare services.

If you find an inaccuracy, file a dispute (most credit companies will even let you file a dispute online), get to the bottom of it, and then do your best to get it fixed, even if you have to hire an outside firm like Lexington Law Sign-Up Page. Trust me, it will be worth whatever it costs.

But, I don’t know anything about credit!

Don’t worry.  Most of us didn’t know anything about credit or credit reports when we first started monitoring our credit score… it wasn’t until we went to buy that first car or even that first house that we had to learn just how important those three numbers are to you and your future.  The most important thing that you can do to get that fresh start is to simply begin…

Credit: Use It or Lose It

If you listen to certain famous financial advisers, some of them will tell you that you should never use credit, that you should pay for everything in cash, and that you should strive to have no credit score at all.  While it’s great if you can buy everything outright and never use credit for anything, it’s also not very practical in today’s world.  How many of us have an extra $25,000 around to pay cash for a car?  Or an extra $150,000 around to pay cash for a house?  Not very many people can do that, can they?

The truth is, almost no one can pay cash for everything.  And there are very few individuals in this world who have no credit score – to have no credit score, you would have to have been out of debt for at least ten years, and even then, I would almost bet you are listed somewhere on the credit scale… you just might not like where you’d be listed.

Is there an alternative to never using credit?

Actually, there is a smarter alternative to the no credit, no credit score myth, and that’s pretty simple.  You just have to use credit wisely!  Instead of having no credit cards, no car loan, and no home loan, you should strive to have a good balance of credit, which would also ensure that you have a good credit score!

You should have at least one or two good credit cards and your debt to credit ratio should always be below 33%. And no, contrary to popular belief, you don’t have to carry a balance.  Use your credit cards once or twice a year and pay them off monthly!  That way, you pay no interest and your debt to credit ratio stays around 0%.  And, make sure that the cards you carry are appropriate for your credit rating – in other words, don’t even try for a credit card that requires excellent credit if your credit score is Fair or even Poor.

When you’re shopping for credit cards, know your credit score and keep the inquiries at a minimum!  Hard inquiries to your credit report can cost you up to five points on your score and if you’re bordering between good and fair, or fair and poor, that five points can mean the difference between getting approved for that new car loan (or new home loan) and not getting approved.

(If you don’t know your credit score, check out our credit monitoring page from some great options!)

What if you don’t have any credit to start with?

If you’re just starting out and don’t have any real credit, consider getting a secured credit card, or even better, look at an online store card like Fingerhut – most people get accepted for a Fingerhut Credit Account issued by WebBank , and they have some pretty sweet merchandise at decent prices, so you won’t be disappointed with your purchases.

So, let’s dispel the No Credit Myth once and for all – remember, when it comes to your credit, Use it or Lose it!