As 2015 approaches, it’s easy to get caught up in holiday shopping and festivities, often neglecting the importance of maintaining your credit. With increased credit card use during this time, it’s crucial to ensure that the end of 2014 doesn’t negatively impact your credit score in the new year. Here are some important things to keep in mind this holiday season to help manage your credit score.
First, it’s essential to understand what affects your credit. Don’t let any misconceptions about your FICO score stop you from striving for an impressive 800+ score. The FICO score is a range from 350 to 850, calculating the risk of a person defaulting on a loan. While it’s often called a credit score, there are various versions sold by different providers. Your FICO score is dynamic and can change whenever a report is pulled, which means your score can shift significantly in a short time.
Your credit score is influenced by several factors. For one, 15% of your score is based on the average length of time you’ve had credit. Whether your credit history is new or established, opening either a secured or unsecured credit card can help build it. If you don’t have a credit card yet, consider getting one to start building your credit history. If you have long-standing accounts, resist the urge to close them, as doing so could harm your score. Instead, keep them open to preserve your credit history.
Additionally, 30% of your FICO score is determined by your current balance relative to your credit limits. Aim to keep your balances under 30% (like a $300 balance on a $1,000 limit card) or spread balances across several cards and credit lines. A common mistake during the holidays is maxing out one or two credit cards, which can lead to high balances for months.
Payment history makes up 35% of your score. This tracks how you’ve managed payments on all accounts. Late payments can hurt your score, and collections or judgments have a severe impact. If any errors occur, reach out to credit bureaus; they’re sometimes willing to remove negative remarks if you’re generally in good standing. If you have debts in collections, try to settle them before 2015.
The types of credit you have account for 10% of your score. Lenders prefer borrowers who regularly make payments on loans such as car loans or mortgages. Meanwhile, new accounts or inquiries into new accounts also affect 10% of your score. Multiple credit inquiries can signal financial instability to credit bureaus.
Understanding these factors can help you significantly improve your FICO score in the next 30 days. This ensures continuous enhancement of your credit, especially as the new year approaches. Enjoy your holiday season, and don’t forget to keep an eye on your credit!