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Once upon a time, my husband and I were drowning in debt. Between the two of us, we had racked up over $120,000 worth of unsecured liabilities. We had student loans, car notes, credit card debt and nary an (appreciating) asset to speak of between us.
When I had my first child, I realized that I wanted to stay home with her as long as I could. However, having a huge pile of debt made that desire nearly impossible.
It wasn’t long until we figured out that I could stay home if we got rid of our debt. So, we started the long process of paying off all that debt on one income.
We started by cutting expenses. Then, we proceeded to increase our income. I picked up various side hustles — like selling things on eBay or Craigslist. These side hustles would eventually evolve into a lucrative database consulting business which was key in accelerating our debt payoff process.
During this whole time, we avoided anything remotely related to debt — especially credit cards and credit scores. I even wrote blog posts renouncing our need for credit and, subsequently, our credit score. Being in debt was so painful that we thought ignoring our credit and anything associated with it would help us avoid financial turmoil forever more.
After a few years, the trauma wore off and we loosened our stance on credit and credit cards some. We applied for a few personal and business credit cards. With these cards, we actually discovered some benefits.
First, there were rewards. We used the cards for our regular business and personal spending and earned points for things like travel and cash back. In fact, one card even garnered us a companion pass for an entire year! We traveled to plenty of places either completely for free or very inexpensively.
On the business side, there’s been the advantage of keeping track of expenses. There are many accounting platforms that allow you to sync your bank and credit cards accounts with them to keep track of your books pretty easily.
Recently, we were able to get a construction loan on an investment property with great terms like a low-interest rate and no PMI (private mortgage insurance). This, along with a 0% APR credit card is making the entire rehab process relatively stress-free.
I bring all this up to show that there is, indeed, value in building a strong approach to credit to help you accomplish financial goals like investing, running a business or even frugal travel. If you want to improve your credit report, it’s never too late to get started.
My husband and I once had terrible credit. However, committing to the process of improving our financial habits and credit management has turned the tide for us.
The new year is a great time to develop healthy credit habits that will help you reach your goals. If improving your credit report and score is something you’d like to do, these tips will help.
Understand your credit
The first thing you should do is understand what factors impact your credit health and how your credit score is calculated. Once you do this, aiming for improved credit health will not be a random, shot in the dark.
According to TransUnion, these are the main factors that go into making up your credit score, with a general percentage breakdown of how each factor makes up your score:
- Payment History: 40%
- Amounts Owed (including reported balances & credit utilization): 20%
- Length of Credit History: 21%
- Total Amount of Recently Reported Balances: 11%
- New Credit: 5%
- Available Credit: 3%
Once you understand how each of these factors impacts your credit, you can begin the work of improving it. There are also a number of tools you can use to help you understand where you are at, personally, on each one of these factors:
- Annual Credit Report– You can obtain your free credit report from all three credit reporting agencies. You won’t get an actual credit score but you can find out the information that that is impacting your score, like any debt or missed payments
- TrueCredit: Gives you full access to your TransUnion credit report. Monitoring your credit report could reveal inaccurately reported data or signs of fraud (which directly impacts credit scores)
- TransUnion Credit Score Overview – Provides additional education and tips regarding your credit report and score
Review your report and take action
Once you get your report, take a look at anything that might be negatively impacting both your credit report and your actual score like:
- Late payments
- Unpaid debt
- High balances
- Inaccurate information regarding your personal data or credit accounts
- Activity or information you don’t recognize that could indicate fraud
You may also notice other, more subtle things, that could be negatively impacting your credit score such as too many recent hard inquiries (requests for new credit) or not enough diversity when it comes to the type of credit accounts you have.
Whatever you discover on your credit report, take action to correct anything you can fix immediately. For example, if you notice there is inaccurate information regarding an account, you can dispute it online with the Official TransUnion Credit Report Dispute. (Be sure to check with Equifax and Experian to do the same.)
If there are signs of fraud or identity theft, you can freeze your credit report with each credit reporting agency (TransUnion, Equifax, and Experian) individually. As of this writing, TransUnion is the only credit reporting agency that allows you to freeze and unfreeze your TransUnion credit with the touch of the button on the myTransUnion app. (It can also be done online with TransUnion.)
To learn more about credit locks or freezes, TransUnion has a helpful guide to help you understand the difference between a lock and a freeze and when these protections should be used. You can also read more about my tips for protecting your credit here.
Create a plan for healthy credit habits
It can take time to build or repair your credit report as your credit score is an extension of your overall financial behaviors. So, improving your financial habits is a good place to begin when you want to improve your credit report.
Be wise with your credit use
- Pay all your bills on time.
- Do not take on more credit than you can comfortably pay off.
- Keep your overall credit utilization low.
- Pay balances, in full, each month to avoid paying excessive amounts of interest.
Always evaluate your credit options
- Be strategic when inquiring about and opening new accounts.
- Consider the impact of closing older cards (it could negatively increase your utilization ratio and potentially lower your score by erasing the positive credit history associated with that account)
- Choose cards that are ideal for your situation. Pay attention to APR, rewards, perks, annual fees, etc. to make sure they line up with your needs.
You can find out more about the best types of credit cards for your needs with TransUnion Featured Offers and check out TransUnion Credit Card Information for additional education and tips on ideal credit cards for yourself.
Remain vigilant about credit monitoring and protection
After reading all these tips to improve your credit health, you might be excited to dive in and get going on your “healthy credit journey” right away. This is exactly what you should do but this isn’t the final destination.
Once you start improving your credit health, you’ll want to protect your personal information and credit report from fraud. Identity theft is becoming more prevalent and even more difficult to prevent. The fact of the matter is that fraudsters have still been able to dupe the system and steal the personal information of unwitting consumers to commit identity fraud.
To avoid being a victim, here are some tips to help you practice good personal data “hygiene.”
- Use a secure password manager like Dashlane that provides secure VPNs and Dark Web Monitoring to help you manage and protect sensitive personal data on the web.
- Shred documents with personal data.
- Opt for electronic communications to reduce paper clutter with your personal information on it.
- Check out TransUnion’s 5 identity theft protection tips & precautions to start taking now for additional education and tips.
Want more ideas on saving, earning extra money and just getting your finances together in general? Check out this free guide, Money Hacks 101: 50+ Ways to Find, Save and Earn More Money.
Click here or the image below to get instructions on how to access it: