By JENNA LEE
Looking to improve your finances in 2016? Trying making a New Year's resolution.
According to a recent study by Fidelity, 37 percent of Americans are considering making a money-related resolution in 2016, and many who made such resolutions last year are in better financial shape today.
In a statement, Ken Hevert, senior vice president of retirement at Fidelity, said that "while the act of making a resolution is certainly not enough to ensure financial prosperity, it can provide the motivation needed to get you headed in the right direction."
The key is to identify clear objectives. Don't just settle for a general statement like "I want good credit" - instead, come up with smaller and more specific resolutions that'll help you reach that higher goal. Here are five smart resolutions that could help your credit situation in 2016:
Dispute major errors on your credit report.
The importance of keeping your credit report accurate cannot be overstated. Credit scores, which many lenders use to determine whether to lend to you or not, are based on information from your report, so it'll likely be worth your time to make sure each detail accurately represents you.
How: After you've pulled your credit report(s) and scrutinized them for errors, the dispute process is fairly simple -- you can typically send a letter, marked-up credit report and proof supporting your dispute to the bureau(s) reporting the error. The bureaus are generally required to investigate the dispute and respond within 30 days.
If you spot an account error on your TransUnion credit report, filing a dispute is even easier with Credit Karma's Direct Dispute™ tool. Just log into your Credit Karma account, select the account and your reason for disputing the error, and we'll send your request to TransUnion for review.
Monitor your credit regularly.
While monitoring your credit may not be the most exciting resolution, doing so is a great way to learn what kind of actions affect your score and may even help you catch fraud early. According to the Identity Theft Resource Center, at least 750 data breaches happened in 2015 alone, further highlighting the importance of keeping a close eye on your credit. Lenders typically report to the bureaus once a month at different times, so checking up on your credit every 30 days or so is a good goal to aim for.
How: Using Credit Karma is a great way to keep an eye on your credit. You can get an updated credit report and score from both TransUnion and Equifax for free each week by downloading our app or logging in to Credit Karma. Checking your own credit doesn't hurt your score.
Reduce your credit card utilization.
Maxing out your credit cards isn't just bad news for your checking account - doing so could also negatively affect your credit score. This is because your credit card utilization, or your total balances divided by your total limits, is weighted heavily in many scoring models and can cause your score to drop if it gets too high. A good rule of thumb is to keep your utilization rate below 30 percent.
How: There are a few different ways you may be able to to lower your utilization rate:
- Consider making more than one credit card payment a month to ensure that your balance doesn't get too high.
- If your credit card provider hasn't increased your limit in a while and you have a good record with them, you could ask for an increase. Just keep in mind that doing so could result in a hard inquiry.
- Consider swiping your cards less, whether this involves using more cash or spending less money in general.
Pay all your bills on time.
As your credit score helps inform lenders how likely you are to repay future debts, your on-time payment percentage is another important factor in calculating your score. Because of this, it's best to do everything you can to make timely payments.
How: Have a history of forgetting to make payments? Consider opting into automatic payments or setting up email or text alerts to remind you when your billing due date draws near - whatever is necessary to get those bills paid on time.
Save for emergencies.
Not only can saving for emergencies reduce a lot of potential stress, it may also be able to save your credit score from tanking if you ever lose your job, total your car, or face a huge medical bill. By establishing an emergency fund, you may be able to prevent having to max out your credit cards or take out loans with unfavorable terms that could end up hurting your credit health.
How: Unless you're spending 100 percent of your income on necessities, try to prioritize saving by paying yourself first - you could take a set percentage or amount of your paycheck and put it directly into a savings account each month before you're tempted to spend it. Alternatively, consider saving every $5 bill or starting off small and gradually saving more and more each month.
You know yourself best - pick a strategy that works for you and start saving. Eventually, you probably won't even miss that money and will be glad to have that fund in an emergency situation.
The beginning of the year is a great time to work on improving any aspect of your life. If you're looking to improve your credit health in 2016, choose and personalize one or more of the above resolutions, grab an accountability partner if you think you'll need encouragement to stay on track and start working toward those goals.
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