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New Year’s Resolutions to help your credit in 2022

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Nearly 7 in 10 Americans are considering a financial resolution by 2022, according to a recent study by Fidelity.

If you’re one of them, you may want to save more money, pay down debt, or spend less. Good finances and a good credit score often go hand in hand. So if your credit took a hit this year or just isn’t where you want it to be, consider adding a goal of improving your credit score to your financial resolutions in 2022.

Having good credit gives you access to more loan options and credit cards with more favorable terms, saving you money over time. And good credit can help you in other ways: Some rental companies may check your credit before approving your apartment application, for example, or your auto insurer may include your credit in your insurance premium.

If you’re ready to improve your credit, here are some ways you can take action and start building good credit habits in 2022:

New Year’s Resolutions to help your credit in 2022

Set a budget

Budgeting is an essential tool for gaining control of your finances and can also help you improve your credit. When you stick to a budget, you can have more discipline to pay your bills on time and make sure you have enough to pay them in full. Falling behind on payments or paying a bill late are two ways you can hurt your score. You can also use your budget to allocate enough money each month to further pay off any debt you already have, which could help your score.

Creating a budget starts with comparing your monthly income and expenses. Once you understand the basics of your budget, you can find the right budgeting system or tool.

make payments on time

Payment history, which includes paying your bills on time and not missing any payments, is the most important factor in your credit score, making up 35% of your FICO Score.

Plus, paying your bills in full (meaning not spending more than you can afford at the end of the month) can help you build credit and avoid high-interest debt. Paying your credit card bills in full and on time each month will help avoid costly fees and interest that can add up over time when you carry balances from month to month.

“Your payment history is the single most important factor in determining your credit score,” says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC). “So if you focus on that, you’re doing yourself a huge favor.”

A smart way to avoid missing a loan or credit card payment is to put your bills on auto pay so they’re automatically deducted from your linked account before they’re due. Just make sure you have enough money in your bank account each month to cover each bill and avoid an overdraft.

tackle your debt

After payment history, the second most important factor in your credit score is how much revolving debt you have compared to your total available credit, also known as your credit utilization ratio. Paying off balances on a consistent basis shows lenders that you can borrow money and pay it back within a reasonable period of time, without spending more than you can afford.

pro tip

Take advantage of credit counseling to increase your credit score. It’s a free or low-cost service offered by nonprofit organizations that can help you create or review your budget, recommend ways to prioritize debt payments, or refer you to a debt management plan. You can find an accredited credit counseling agency through the NFCC and the Financial Counseling Association of America.

Experts recommend keeping this ratio at or below 30% to build and maintain your credit score, but below 10% can have an even bigger impact.

If you have debt, paying it off can help you build credit. Consider focusing on any high-interest credit card debt first, as it’s likely to cost you more money in interest over time than, say, a car loan or federal student loan.

Using your budget, you can create a plan based on the total amount you owe, how much you can afford to put toward the debt, and when you want it paid off.

Consolidating your debut with a balance transfer card with a long 0% introductory APR period or a loan with a lower interest rate can help you save money and eliminate your debt faster.

Check your credit regularly

Your three-digit credit score is determined by what’s on your credit report. In some cases, you may be able to improve your credit score simply by finding and correcting an error on your credit report.

You are generally entitled to one free credit report from all three credit bureaus each year at AnnualCreditReport.com. But in response to the COVID-19 pandemic, each of the three bureaus (Equifax, Experian and TransUnion) have offered access to their report once a week, through April 2022.

While it’s smart to monitor your credit report for errors or instances of fraud, it’s also important to monitor your credit score. When you monitor your credit score, you can address factors that are influencing it, such as high balances, late payments, or too many recent inquiries. You can usually check and monitor your credit score for free through your bank or credit card issuer.

How to start building credit

If you have bad or no credit history, there are a few things you can do to start building credit from scratch.

If you have a trusted loved one with good credit, consider asking if they would add you as an authorized user on your credit card account. This will give you access to your own card, which you can use to charge purchases and build credit history. However, the primary cardholder is ultimately responsible for making payments on the card balance, so it’s important to make this type of arrangement with someone who is financially responsible and pays their balance on time each month.

There are also financial products designed to help people start building credit with little or no credit history, such as secured credit cards and cards with alternative approval requirements. For example, the Petal® 2 “Cash Back, No Fees” Visa® Credit Card uses factors outside of a traditional credit score to determine your eligibility, such as income, savings, and spending history using your bank account information. A secured card works similar to a credit card, but you’ll need to make a refundable deposit when you open the account.

Also consider using tools like Experian Boost, TransUnion’s eCredable Lift, and FICO’s UltraFICO Score to improve your credit score. When you opt-in, these services typically help boost your score by adding recurring, but not traditionally reported, payments to your credit report, such as utility payments or checking and savings account information.

More information external link icon

Petal® 2 “Cash Back, No Fees” Visa® Credit Card

Editor’s Score: (4.0/5)

Editor’s Score: (4.0/5)

annual fee: 5.0

prequalification: 5.0

rewards and benefits: 4.5

credit building tools: 4.0

automatic issuer verification: 3.0

April in progress: 3.0

other fines for charges: 4.0

Last updated December 21, 2021

All reviews are prepared by NextAdvisor staff. The opinions expressed therein are solely those of the reviewer. Information, including card rates and fees, presented in the review is accurate as of the review date.

  • Introductory Offer:

    N/A

  • Annual quota:

    $0

  • ordinary APR:

    12.99% – 26.99% (varies)

  • Recommended Credit:

    (No Credit History)

  • Apply nowexternal link icon On WebBank’s secure site

More information external link icon Capital One Platinum Secured Credit Card

Capital One Platinum Secured Credit Card

Editor’s Score: (3.5/5)

Editor’s Score: (3.5/5)

minimum deposit: 5.0

maximum credit line: 2.5

rewards and benefits: 3.0

credit building tools: 3.5

automatic issuer verification: 4.0

April in progress: 2.0

other penalty fees: 3.5

Last updated December 21, 2021

All reviews are prepared by NextAdvisor staff. The opinions expressed therein are solely those of the reviewer. Information, including card rates and fees, presented in the review is accurate as of the review date.

  • Introductory Offer:

    N/A

  • Annual quota:

    $0

  • ordinary APR:

    26.99% (changeable)

  • Recommended Credit:

    (No Credit History)

  • More informationexternal link icon On our partner’s secure site

More information external link icon Card Tome

Card Tome

Editor’s Score: (4.0/5)

Editor’s Score: (4.0/5)

annual fee: 5.0

prequalification: 5.0

rewards and benefits: 3.5

credit building tools: 4.0

automatic issuer verification: 1.0

ongoing april: 4.0

other fines for charges: 5.0

Last updated December 21, 2021

All reviews are prepared by NextAdvisor staff. The opinions expressed therein are solely those of the reviewer. Information, including card rates and fees, presented in the review is accurate as of the review date.

Bottom line

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As with all of our credit card reviews, our analysis is not influenced by any association or advertising relationship.

While these strategies will get you started on your credit-building journey in 2022, remember: Improving your credit takes time. A good credit score is the result of years of practicing good financial habits, like paying your credit cards on time and in full and avoiding spending more than you can afford. Still, you can start implementing these habits this year, so you can build and maintain a great credit score for the long haul.

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