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The Ultimate Guide to Starting the New Year with a Strong Credit Score

December 23, 2022

As the beginning of a new year, it's important to reflect on our past actions and make plans to improve our future. One of those important plans should be improving your credit score in 2024

After all, a strong credit score is essential for securing loans, credit cards, and even renting an apartment. Simply put, your credit score significantly affects your financial well-being. 

Fortunately, with some knowledge and determination, you can start taking steps toward improving your credit score now. From paying your bills on time to monitoring your credit report, this ultimate guide includes all the tips you need to boost your score before spring.

The Importance of a Strong Credit Score

Unfamiliar with the concept of a credit score (or don’t quite understand why they’re so important in today’s world)? 

Let’s put it this way: your credit score is like your financial report card, and a strong one can mean the difference between being approved or denied for loans, credit cards, and other financial products. Your credit score isn’t just a number; it reflects your financial responsibility and trustworthiness as a borrower.

Even if you have a “decent” credit score and get approved for a loan, having a strong credit score can also lead to lower interest rates, which means you pay less in interest over the life of a loan. For example, a home loan with a 3% interest rate versus a 5% interest rate can save you tens of thousands of dollars over the span of the loan.

It takes time and effort to build and maintain a good credit score, sure, but with the help of credit building tools like Cheese, you can start the new year with a plan to improve and strengthen your credit score.

Assessing Your Current Credit Score

Now that you understand the importance of improving your credit health in the new year ahead, you’ll want to start by setting credit score goals for the new year. To ensure you're heading in the right direction, you'll need to check your credit score and dive deeper into your credit report.

How to Check Your Credit Score

While it might have been more difficult in the past, checking your credit score has never been easier, thanks to the digital age we live in. 

You can instantaneously access your credit score by logging on to your bank's app, using a credit monitoring tool, or requesting a free annual credit report from one of the three major credit bureaus — Equifax, Experian, or TransUnion. Additionally, many credit cards now offer free credit score monitoring to their cardholders.

Check your credit score often to detect any discrepancies or fraudulent activity. You’re allowed one free credit report annually from each of the three major credit bureaus, but if you use a credit monitoring app, you can typically receive updates biweekly or monthly.

Analyzing and Understanding Your Credit Report

Once you have your credit report in front of you, it's time to analyze and understand it. Look for any errors or discrepancies in your personal information and any accounts that might be incorrectly listed. 

Most of all, you’ll want to ensure your payment history is accurately reflected and look for areas where you can improve your credit utilization ratio (the amount of credit you use compared to your overall credit limit).

Identifying Areas for Improvement

After analyzing your credit report, identify areas where you can improve your score. Late payments, delinquent accounts, and high credit card balances can negatively impact your credit score. 

Create a list of areas you want to improve and develop a game plan for tackling them, whether by setting up automatic payments or lowering your credit utilization rate (keep scrolling for more actionable tips if those don’t apply to you).

Steps for Improving Your Credit Score in 2024

Have you reviewed your credit report and seen a few areas for improvement? If so, there are a few best practices for a strong credit score in the new year you should follow. By implementing these steps, you'll be well on your way to starting the new year with a strong(er) credit score.

Paying Bills on Time

One of the most important things you can do to improve your credit score is to pay your bills on time. Payment history makes up 35% of your FICO credit score (making it the most important factor), so even one late payment can have a negative impact.

If you struggle with remembering to pay your bills on time, set up automatic payments. This simple step can save you from missed payments, late fees, and, subsequently, a drop in your credit score. Just ensure you have enough money in your account each month to cover those automatic payments!

Lowering Credit Card Balances

If you carry lots of credit card debt, you likely have a high credit utilization ratio, too. That’s the amount of available credit you use, which makes up 30% of your FICO score. 

Therefore, you can easily (and somewhat quickly) lower your credit card balances by creating a budget and sticking to it. Aim to pay off as much of the balance as possible each month and avoid overspending in the future. 

Another useful strategy is to pay off credit card debt with the highest interest rate first. Lowering your credit card balances will lower your credit utilization ratio and boost your credit score. Try to keep your utilization in the 1% to 10% range to notice significant increases in your score.

Limiting New Credit Inquiries

When you apply for new credit, the lender will run a credit inquiry, which counts as a hard pull and can negatively affect your credit score. Limiting these inquiries is key to improving your credit score. 

Be strategic when applying for new credit and try to avoid multiple inquiries in a short period. If you're shopping around for the best loan or credit card, do it quickly so that the inquiries are counted as only one.

Reviewing and Correcting Errors on Credit Reports

Lastly, it's best practice to review and correct errors on your credit reports regularly. Even small inaccuracies can be detrimental to your credit score, so you want to catch them as soon as they occur (if they do — it’s not super common).

Strategies for Building a Positive Credit History

Interested in taking a few more steps to a better credit score in the new year? We’ve got more tips to help you achieve your credit goals in 2024! Combine the previously mentioned tips with these helpful financial actions, and you’ll likely notice a quick boost in your score shortly after ringing in the New Year.

Diversify Credit Accounts

One of the most important factors in building a strong credit score is having a diverse mix of credit accounts. This means having a balance of different types of credit, such as credit cards, car loans, and student loans

Lenders like to see that you can handle different types of credit responsibly, which will help boost your score over time. However, remember that it's important only to take on credit that you can realistically afford to pay back.

Be Cautious With Credit Applications

Remember — every time you apply for credit, it appears on your credit report as a hard inquiry. Too many hard inquiries can hurt your credit score, so it's important to be cautious with credit applications. Only apply for credit when you really need it, and try to limit the number of applications you submit in a short period.

Use Credit Responsibly and Consistently

Using credit responsibly means making your payments on time and in full each month. As mentioned, late payments can severely damage your credit score, so staying on top of your payments is important

Another important part of using credit responsibly is keeping your balances low. Ideally, you should only use a small percentage of your available credit at any given time. Using credit consistently also means not closing accounts you've had for a long time, as this can hurt the age of your credit accounts.

Use Cheese to Improve Your Credit Score in 2024

By following these strategies as you ring in the New Year, you can set yourself up for a strong credit score that will benefit you for years to come. Remember, building a positive credit history takes time and consistency, so stay patient and keep up the good habits! 

Good credit doesn't happen overnight, but you can get there faster with the right mindset and tools like Cheese. With Cheese Credit Builder, you can start building a positive credit history immediately without any credit checks.

Start your credit-building journey with Cheese today! Sign up now.

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