Credit score tips to use in the new year

A good credit rating doesn't happen by itself, but it's easier to achieve when you commit to taking control of your finances. Use these tips on how to improve your credit score, and you'll be on your way to a prosperous new year.

How to improve your credit score

There are four simple ways to improve your score, including reviewing your credit report, paying down your debts, setting up automatic payments, and making sure you don’t over extend your credit. We’re going to break down all of these tips so you can focus on those goals this year.

Review your credit report

Before you look at your report, you may be wondering, what factors go into a credit score? Your FICO credit score is made up of the following key factors:

• Your payment history (35%)
• Credit utilization (30%)
• Age of credit (15%)
• Credit types/total accounts (10%)
• Credit inquiries (10%)

To learn more about each of these factors, including how they are defined and calculated, check out “How is your credit score calculated”.

Once per year, you're entitled to a free copy of your credit report. If you haven't gotten yours yet, there is no better time than the present at annualcreditreport.com. Your credit report contains your credit history from the past seven years that affects your credit score. Review it for any inaccuracies and make a note if anything is hurting your credit score — such as late payments and having too much debt.

What should you do if you find an issue with your FICO credit score? If you find any issues with your report, the Federal Trade Commission (FTC) recommends that you contact the credit bureau and the creditor. Provide them with copies — not the originals — of any documents supporting your position, and keep copies of the letters and other documents for yourself, too.

Pay down your debts

Having a lot of debt not only impacts your debt ratio, but the interest you pay could be going toward other things you value. Rather than making just the minimum monthly payments, resolve to start the New Year on the right financial foot by paying off your credit cards and other high-interest debts as quickly as possible. When you make a plan, remember these important notes:

• Paying off one card with another won't help your credit utilization ratio.
• Avoid closing out lines of credit in an effort to boost your credit score — doing so may actually have the opposite effect.
• Create a six-month plan to cut expenses so you can put more money toward paying your debt.

Set up automatic payments or reminders

Smartphones have the ability to remind you of just about anything. Why not leverage this technology to alert you when each bill is due? If you do miss a payment, contact your creditor immediately. They may be willing to remove a rare late payment from your account.

If you haven't done so already, automate any recurring payments that are always the same amount, like your car payment and mortgage. You can also automate variable withdrawals such as credit card payments, but be sure to change your account setting to withdraw the statement balance on the card as opposed to just the minimum payment.

Don't over-extend your credit

If you don't have a credit history, getting a credit card can be a good way of establishing a track record. However, avoid applying for too much credit. Having too many inquiries by creditors on your credit report can raise a red flag for other creditors down the road. It’s important to know when your credit score is pulled. If you need to apply for a loan and want to shop around, do it within a short time frame rather than spreading out your applications over several weeks or months.

As the phrase goes, “New Year, new you!” Follow these and other steps to raise your credit score this year to get to a more financially fit you.

Looking for more credit tips? Check out these articles:

• Credit limit increase: pros, cons and when you should do it
• What you need to know about card limits