Carrying a Balance Will Hurt You More
Until a year ago, Federal Reserve rates were at zero for more than half a decade. A rate hike in December of 2015 and another hike in December of 2016 has changed the trend. Expect three more rate hikes in 2017. Creditors and credit card companies are likely to raise rates to match the Fed’s rate hikes. The cost of carrying a balance will be higher in 2017.
Replace your Debit Card with a Credit Card
Trying to be a responsible consumer? Don’t want to spend money you don’t have? Those are great goals, but don’t hurt your credit rating in that pursuit. Creditors don’t report Debit Card usage to the credit bureaus. 30% of a credit score is based on utilization. Get a credit card and use it, but don’t spend money that you don’t have and pay it off 100% each month. You won’t pay interest and you’ll increase your credit score substantially.
Eliminate Nuisance Balances
One of the items your score considers is how many of your cards have balances. It is better to pay off some credit cards and keep a higher balance on the others versus paying them all down equally. Pay off those with lower balances if possible and it will help your credit score.
Avoid Paying Double for Auto Insurance
According to a new report by InsuranceQuotes, credit has a significant impact on what you pay for car insurance. The study found that if you have poor credit, your premium increases by 104% on average. Most U.S. Insurance companies use credit to set auto premiums, except those states where the practice is not allowed (California, Hawaii, and Massachusetts). Improve your credit score so you don’t waste money on car insurance premiums.
Avoid Paying Double for Home Insurance
“In most states, insurers are putting more emphasis on credit scores this year,” says Laura Adams, a senior analyst with InsuranceQuotes.com. According to a new report, homeowners with poor credit pay twice as much for homeowner’s insurance as people with excellent credit. Improving your credit scores will lower your home insurance premiums.
Request Credit Limit Increase
If you only have one credit card and you typically use much of the credit limit, call the credit card company and ask for an increase in your credit line. Remember, you want to have more credit available and then not use it. Improving your utilization can come from paying down balances or increasing Credit Limits.
Don’t Try to Remove Old Debt
35% of a credit score is based on credit history. Don’t attempt to close old credit cards or remove old accounts that have a good payment history. Credit expert, John Ulzheimer says, “Trying to get rid of old debt “is like making straight A’s in high school and trying to expunge the record 20 years later. You never want that stuff to come off your history”.
Don’t Obsess – Do Strategize
Pay your bills on time and use credit responsibly. When you know you will be applying for credit, do this. Call your credit card company and find out when they report to the bureaus. It is likely to be the day they send your statement. Pay your bill down or pay it off prior to the reporting date and your utilization will be much stronger and your score higher.
Don’t Dawdle on Credit Applications
10% of a credit score is based on new credit. Credit inquiries and applications lower your credit score. If you are shopping for a home, a car, or a student loan, it pays to do your rate shopping within a short period. Depending on the scoring software, you have 14 to 45 days to rate shop and have it count as just one inquiry.
Know what is in Your Credit Report
According to an American Bankers Association survey, only about 60% of Americans have checked their credit report in the last year. It is imperative to know what is in your report prior to applying for credit and not be surprised by what you find. You might be torn between paying an unnecessary higher rate or waiting for months to get your credit back to where you want it. AnnualCreditReport.com is the official site to access your free credit report. Don’t google “free credit report” and get duped by those trying to get you to pay for more than what you need.