Your credit score is an important stat of your finances, playing a behind-the-scenes role in everything from the loans you borrow to the auto insurance you get. But for many people, it’s not something top of mind unless they’re in the middle of borrowing or applying for insurance.
Unfortunately, credit isn’t something you can change the night before you take out a personal loan; it’s something you build over time with good habits. So, don’t delay — start building your score now. Follow these five tips to improve your finances in 2024.
1. Understand How it Works
When it comes to your credit score, do you know how it’s calculated? Credit scores can pose more of a mystery than your favourite true crime podcast, especially if you’ve never checked your report before.
Luckily, these scores sound more complicated than they are. They’re simply a reflection of your performance across five major financial factors:
- Payment History
- Used Credit vs. Available Credit
- Length of History
- Public Records
Getting to know these factors can help you identify what you can do to pack your file with positive entries.
2. Check Your Report and Score Regularly
Knowing your three-digit score is only half the battle. You should also check in regularly with your full report. This way, you can confirm the details it contains are correct and an accurate reflection of your borrowing history.
Be on the lookout for accounts you don’t recognize, as well as any errors in your contact details or balances. Monitoring your file this way can keep inaccuracies from unfairly bringing down your score, and you can spot potential identity theft.
3. Pay Bills on Time
Your payment history made it to the top of the list of five factors for a reason. It makes up 35% of your score, so it plays a big role in your performance.
Late or missed payments can make a huge dent in your score, so you want to make sure you never miss a due date. Sit down with your budget to prioritize your cash for bills before other expenses.
4. Reduce Credit Card Balances
The second most important factor of your score is the balance of your revolving credit accounts, like your credit cards and lines of credit.
Carrying over a balance every once in a while isn’t a cause for alarm. But you should be wary of doing this every month, especially if you are close to your full limit.
Go back to your budget to see how you can increase your payments against these revolving accounts. Your ultimate goal is to bring your balance down to zero at every due date. If you can’t do that, pay as much as you can, ensuring you cover the minimum at the very least.
5. Build an Emergency Fund
One of the most effective ways to keep your credit card and line of credit balances low is with an emergency fund. Having a well-stocked savings account means you can dip into these funds first before you draw against your line of credit.
How much do you need in savings? Everyone has a different number to feel secure. However, most financial experts recommend you save three to six months of living expenses.
Any one of these habits can help you improve your financial situation this year. But for the great impact on your finances, adopt them all.