Building Your Credit Score in 2021

Have you made any New Year’s Resolutions for 2021? How are they coming? Did you know that, on average, most people have given up on their resolutions but January 11th? If rebuilding your credit rating was on your list for this year, we’re sharing some tips to help you keep this one.

  • Keep your balance under 25% of your limit.

A good general rule for having a credit card is to ensure that your balance is under 25% of the credit limit. Most credit bureaus recommend keeping a lower utilization rate so that you can improve your credit score. That’s because your “credit utilization ratio” compares the amount you owe with the total credit available to you. This comprises 30% of your overall credit score.

  • Pay your bills on time, every time.

Payment history accounts for nearly 1/3 of your overall credit score, so you want to make sure to NEVER miss a payment! Late payments make an enormous (negative) impact on your credit score and can take up to 7 years to remove from your credit history. Stay up to date on when your bills are due and at the very least, pay them by the due date. If you do happen to miss a payment, contact the lender and explain the reason. Some might extend good will and wipe a late payment off your credit history if you’ve been a good customer prior.

  • Keep your old accounts.

Cancelling some of your older credit cards may seem like a great idea when trying to reduce debt, but tread carefully. FICO notes that they would “never recommend closing a credit card for the sole purpose of raising your FICO score.” This is because closing existing accounts will not only reduce the total amount of credit available to you, but it would also increase your ratio of outstanding debt vs. credit available.

  • Don’t open a lot of new accounts over a short period of time.

Be financially savvy when it comes to new credit. The amount of credit that you have represents about 10% of your credit score. Although this is not a significant portion, applying for credit over a short period of time will potentially lower your score, especially for people who don’t have a long credit history.

  • Pay off credit card debt rather than transferring it

Transferring your debt from card to card keeps your debt-to-credit ratio higher, increases the number of new accounts on your records, and diminishes the length of your credit history because no one account is open very long. Rather than revolving your debt from one card to the other, try paying it off little by little.

  • Review your credit report regularly and correct errors

Once your credit score is where you want it, don’t forget to keep monitoring it! By federal law, you are entitled to one free copy of your credit report per year from each of the three major credit bureaus and in Georgia, we’re entitled to two per year. Check your credit report at least once per year to ensure that the information on it is yours, and correct.

Facing down debt and rebuilding your credit is a noble goal any time but the first of a new year is a particularly good time. Just think, if this is your focus this year, you just might be able to start 2022 with a solid credit rating and some money in the bank!

Happy New Year! Stay well.

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