12 Days of Credit Improvement

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Credit Sesame on credit improvement over the holiday season.

Consumer credit often takes a beating during the holiday season. You can flip that script with a credit improvement step on each of the 12 days of Christmas.

It’s the perfect time to do it. Instead of dreading larger credit card balances and minimum payments following the holidays, how about using downtime from work to make your holiday debt more manageable?

Follow our 12 credit improvement steps one day at a time over the holidays.

1. Check your credit reports

Figuring out where you are starting from is key to being able to monitor progress. You can check your credit reports from Equifax, Experian and Transunion for free at AnnualCreditReport.com.

Your credit report shows the status of your credit accounts. This includes your balances and your payment history.

High balances and late payments generally hurt your credit score. Identify any problems you need to address. Also keep an eye out for any mistakes on your credit report. Getting these fixed could give your credit score an instant boost.

2. Sign up for credit monitoring

Sign up for free credit monitoring, including daily credit score updates. Think of this as an ongoing extension of checking your credit report. Credit monitoring lets you know when there has been any significant credit activity in your name.

This can be useful in helping you track your progress as you take additional steps to improve your credit. In addition, credit monitoring can alert you to any unusual activity that could be a sign of fraud.

3. Prioritize your credit card debt

If you have balances on more than one credit card, it pays to prioritize which balance to pay down fastest. Check each credit card statement to see what the current interest rate is. Then list all your cards in order of interest rate, from highest to lowest.

Make the minimum required payment on each card. Then, if you have extra money for payments, target the highest-interest card first. This has the biggest impact on reducing future interest charges, and that makes paying down your debt less expensive.

4. Negotiate a better rate on your high interest cards

Contact the credit card issuers of your highest-interest cards to see if you qualify for a lower rate.

Your chances of succeeding are best if you have a good payment history on that card and if your credit record is generally strong. It doesn’t cost anything to ask.

5. Shop for a cheaper credit card

If you can’t get a rate reduction on your high-interest credit cards, shop around to see if you could do better with a new credit card. Sign up as a Credit Sesame Member and see if you qualify for any cards under the Sesame Guarantee Program.

Remember that opening a new account could hurt your credit score a little so you should be reasonably certain of a successful application before applying. A new card could save you money on interest and reduce your credit utilization. This should help you improve your credit over time.

6. Consider credit card debt consolidation

While shopping for cheaper alternatives, you may see an opportunity to save money by transferring one or more existing balances to a less expensive card.

You might maximize those savings by using a zero-percent balance transfer card. This strategy works best if you:

  • Have a plan for paying off the balance before the temporary zero-interest period expires
  • Check to see if the interest you save exceeds any fees for transferring balances

7. Refinance long-term credit card debt into a loan

If your existing credit card balances are so high it might take more than a year to pay them off, consider refinancing some credit card debt into a personal loan.

Personal loans generally have lower interest rates than credit cards. They also give you a set schedule for paying off your debt.

If you use a personal loan to pay off credit card debt, make sure you don’t start building those balances up again. Any debt refinancing or consolidation should be part of a broader debt reduction program.

8. Make a monthly payment schedule

Create a schedule of payment due dates for your credit cards. Knowing when you must pay makes planning easier.

Even if you have automated payments for your credit cards, you must plan for those payments by making sure there’s enough money in your bank account to cover them. Also, planning payments helps you spot when you have excess funds and so an opportunity to pay more than the minimum payment. This reduces your outstanding debt faster.

9. Get balances down below 25% of your credit limit

One factor used to determine your credit score is the percentage of your credit limits that is currently in use.

Aim to get the amount of credit you use below 25% of your credit limit. There’s no magic to that number, but keeping a fairly low balance should help your credit score and help you make sure your balances aren’t creeping higher over time.

Once you get your credit usage below 25% you can shoot for paying off your balances completely. That is both the cheapest way to use credit and best for your credit score.

10. Apply for higher credit limits

One way to get your credit utilization rate down is to ask your credit card issuers to raise your credit limit.

The chances of a card issuer raising your limit are best if you have a good credit score and haven’t missed any payments on the card. According to data from the Federal Reserve Bank of New York, nearly two-thirds of applications for credit limit increases are approved.

Remember that a credit limit increase does nothing to reduce your interest charges. However, it can improve your credit score as long as you don’t proceed to build your balances up to the new limit.

11. Create a budget for the year

The best thing you can do for your credit score, in the long run, is to create a budget that doesn’t depend on continued borrowing.

There may be times, such as the holiday season, when it’s necessary to borrow money temporarily. However, having a budget for the full year helps you see how much you can afford to borrow and still pay off your balances within the year ahead.

12. Start setting aside money for the next holiday season

Even borrowing money temporarily costs something. The best way to pay for holiday shopping is with money you’ve saved up in advance.

As you get better at budgeting, plan on setting aside an amount each month to use towards next season’s holiday spending. This may even mean you can earn interest during the year instead of paying it.

That’s it for the 12 days of credit improvement

Credit improvement is not the most festive activity over the holiday period, but if you follow these tips, you might find that twelve days of credit improvement turns into twelve months of feeling merrier about your finances.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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