Wouldn’t it be wonderful to go into the new year with good credit? Your credit score has a major impact on your financial life — having a higher score comes with benefits like cheaper mortgage loans, better credit cards, and more. Ultimately, having good credit makes it easier to borrow money without owing a ton of interest, and in this high interest rate environment, the higher your credit score, the more you’ll save.
As an example, as of this writing, myFICO notes that the average mortgage interest rate for someone with a credit score above 760 (“very good” to “exceptional”) is 7.4% — but if your credit score is 620 (“fair,” and also often considered the minimum for a conventional mortgage loan), you could pay 9% on a mortgage loan. That makes a major difference — both in the amount of your monthly payment, and the total interest you’ll pay over time.
Now you know why it’s worth working on your credit — so let’s discuss a few ways you might be able to add some points to your credit score before 2024.
1. Make all payments on time
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A lot of people wait until the new year officially begins before they act on their resolutions, but if you’re hoping for a higher credit score, the time to start is now. Your payment history is responsible for 35% of your FICO® Score (the one 90% of lenders use). If you’ve been lax about making on-time payments before now, the easiest way to see a higher credit score in the future is to pay your creditors by your due date every single month.
This won’t improve your credit score overnight, but playing the long game will give you better credit in the future. In addition to improving your credit score over time, this move will also mean never having to pay a late fee ever again.
2. Pay down existing debt
Another huge part of your credit score is the amount of money you owe relative to your total credit limit. This is called your credit utilization ratio, and ideally, it’s best to keep it under 30%. This means that if you have a total revolving credit limit of $10,000, you’d owe less than $3,000 total at any given time. Reducing this percentage will go a long way toward boosting your credit score — I added 100 points to mine recently and most of that was due to paying off existing debt.
I have found that the best way to pay off debt is to increase income, rather than trying to scrub all the fun out of your life by cutting tiny expenses here and there. Another effective way to free up money to send toward debt is to make a change to a big expense in your life — for example, if you have a hefty new car payment, you might consider selling your current car and instead buying a cheaper used car (as a bonus, your insurance costs will also likely decrease).
3. Increase your credit limit
You may also be able to add points to your credit score by lowering your credit utilization ratio in another way: getting a credit limit increase. If your credit score isn’t already decent, you may not qualify for one, however. But it never hurts to ask — you can request a credit limit increase through your card issuer’s website or customer service line.
If you’ve been a loyal customer who uses the card regularly (and you make your payments on time), you might just find yourself the owner of a shiny new higher credit limit. Note that some card issuers run a hard credit check when deciding whether to approve a higher limit for you — this can ding your credit score by a few points.
4. Hold off on applying for new credit
Hoping to get a new credit card to help with holiday shopping? Not so fast. It’s a better idea to hit the pause button on new credit cards if you want to finish out 2023 strong. Applying for a new card will ding your credit score by a few points (thanks to a hard credit inquiry), having the exact opposite effect that you want. Focusing on the cards you already have (and ideally, paying down debt and perhaps asking for a credit limit increase) is healthier for your credit score.
Reevaluate your credit score situation when we’re a few months into the new year (and after you’ve made the moves I discussed above). If you’ve got a higher score than you do now, you might find that you qualify for even better credit cards, and you’ll be happy you waited.
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Ultimately, while you might be able to move your credit score in a positive direction before 2024, don’t expect a huge change — remember my 100-point addition to my credit score I mentioned earlier? That took eight months. So consider following these tips to lay the groundwork for future personal finance improvements and ensure your credit score’s best days are ahead of you, not behind.