This post is sponsored by Lexington Law but the content and opinions expressed here are my own.
Over the last few years, a lot has changed in our lives. We bought a new home, became parents and have been slowly setting our foot in our new lives. Although the entire journey so far has been really exciting filled with exciting experiences, along with all this there have also been increasing financial responsibilities on us. One thing that I have realized over the past few years of being a homeowner is how having good credit can really step up your game and help you achieve your dreams.
When we bought a home, we had no idea what one small missed credit card payment could do to our credit report. Did you know that these missed payments can stay in your credit report for seven years and every time you apply for a new home loan or a car loan, these black marks affect your credit and hence can prevent you from getting the required loan or a good interest rate?
With the start of 2020 while I was planning my goals and big adventures that we would like to take as a family, I decided to work with Lexington Law so that they can help me be on top of my credit health. In this blog post I will share with you three easy steps that can help you improve your credit health in 2020 that can take you a step closer to achieving your dreams.
Pin this post to keep it handy all the time!
You will be surprised how many people are ignorant on what a credit score is. When I was fresh out of college, I paid little to no interest in even finding out what my credit score was. It was not until a year later when I had to buy a car that I started to look into it. Before you get into trying to improve your credit health, it is important to understand what a credit score is and how it can affect some major decisions in your life.
What is a credit score?
A credit score is a three-digit number that tells lenders about your creditworthiness, that is how likely you are to pay back a loan based on your credit history.
What is a good credit score?
Your lenders will make their decision whether to lend you the money based on how high you fall in the bracket. Most credit scores have a 300-850 score range. The higher the score, the lower the risk to lenders. A “good” credit score is considered to be in the 680- 700+ score range, depending on the scoring model used.
Your credit score can influence the interest rate you receive on a loan or your home mortgage, finding a rental home, attaining certain jobs, your insurance rates, and more.
Related: 14 ways to simplify your life in 2020
Below are three tips on how to improve your credit health in 2020 and once you sign up for Lexington Law, the professionals at the firm will work with you to monitor and keep your credit in good standing.
3 EASY STEPS TO IMPROVE YOUR CREDIT HEALTH
1. Understand your credit
The first and foremost step is to understand your credit as well as your history. There are three main credit reporting agencies (TransUnion, Equifax, and Experian), which is why the reporting score might change. They calculate your score depending on the information they have about you and your credit history. It is very important to understand how much debt you are in, and what are the interest rates that you are being charged on your existing debt.
Below are the categories that impact your credit score.
- Payment history – Payment history is the most important ingredient in credit scoring, and even one missed payment can have a negative impact on your score. Payment history accounts for 35% of your credit score.
- Length of credit history – How long you've held credit accounts makes up 15% of your credit score. A longer your credit history is generally better for your credit score.
- Credit Utilization – Generally makes up 30% of your scores. This includes your balances in comparison to your available credit. This makes up your utilization rate, and tells lenders if you are using your credit responsibly.
- New credit accounts – The number of credit accounts you've recently applied for that show up as hard inquiries lenders make when you apply for credit, accounts for 10% of your Score. “Credit shopping” can indicate increased risk, and as such can hurt your credit score.
- Credit Mix – Maintaining a mix of credit (home loan, car loan, credit card etc.) demonstrates that you can handle multiple types of credit. Along with the other elements above, improving your credit mix can help you reach excellent credit score status. Generally, accounts for 10% of your credit score.
When I started working with Lexington Law, I was really pleased as the professionals took time to understand my credit history and helped me plan my steps going forward. Lexington Law also offers a free credit report consultation which you can use prior to signing up with them.
Related: How to create a monthly grocery budget for your family
2. Create a plan to improve your credit
After you have a clear picture on what your credit looks like, the next step is to take actions on how you can improve it. Below are a few steps that I had taken to improve my credit history and I started to see an improvement in my credit within a few months.
- Try to make more payment towards your existing debt so that you will pay less interest. This will decrease your credit which, if nothing else changes, should be a positive mark on your credit. It is ideal to always maintain your credit card usage below 20% of your limit. I usually set a reminder on my credit cards. As soon as my expenses touch 20%, I get a message on my phone, which helps me become more cautious of my future expenditures
- Do not close old accounts as that will affect your credit age. Having long term positive credit is good for your credit profile.
- Beware of hard inquiries when applying for a loan or renting a new home. Too many hard inquiries can hurt your credit and bring it down.
- Make your payments on time so that they don’t get reported. Late payments can really hurt your credit history
At the start of 2020, while working along with the Lexington Law professionals, I made sure to act on all the above steps and it has helped me to be in a better financial shape than I was before.
3. Repair your credit
Along with the above steps, the last one is to monitor your credit to make sure that there are no inaccurate negative items that are hurting your score. This is where Lexington Law can really help you out! Lexington Law is a credit repair firm that provides credit report consultations and credit repair assistance. They help work with you to ensure that your credit reports are fair, accurate and substantiated.
Lexington Law also has monitoring available with some of their packages, and has helped ensure me that my credit is protected against fraud. Fraudsters can take loans, open new credit cards, make expenses which you will not be aware of until you monitor your credit regularly. All these can lead to missed payments which can ultimately lead to lower credit.
Working with Lexington Law professionals over the past few months has helped me get rid of my worry over my score, gain a stronger hold on my finances and brought my family a step closer to our dreams.
What are you doing to improve your credit to start 2020 on the right foot?
I’m glad there’s a place to help with your credit score. So far, mine is good, so I’m happy! I always make sure I pay off bills on time.
I was fortunate to always know the value of a good credit report. And in the past year I have watched my report go even higher than I expected. Your advice is all perfect!
I taught Life Skills to teenagers, and its scary how many of them do not understand credit cards or credit scores. They look at it as free money and that they do not have to pay it back let alone with a high-interest rate. We are actually refinancing our mortgage because interest rates are so low and we have really good credit. It is going to save us a couple hundred a month! Great article.
My credit score is good but my son needs to improve his. I will be sharing this with him
Having good credit is important so you can get a good rate on larger purchases. It’s not easy to obtain it, but if you follow these steps you will be on your way!
These are some great tips to improve your credit health. We are working on paying of all of our debt and then I won’t care about our credit anymore because we won’t have any debt to be on there.
I have a good credit score right now, but I’m not sure what’s going to happen in the coming days, weeks, and months. Hopefully things will get better.
awesome tips! we do all need this for our lives!
These are great tips. It would be a fantastic idea if they taught kids about credit scores and, in general, about finance. I think it’s an important life skill that many of us lack. Me, for example.
Great advice! I have always said that the school system should incorporate realistic and real-world lessons about credit including how to protect our credit, smart vs poor credit choices, etc. It’s a topic that most children/teens don’t get adequate instruction in, then we throw them in the deep end and wonder why so many are drowning!
After this chaotic pandemic, I won’t even want to look at my credit score! It’ll be shot to hell because of it all. But it’s good there are places like this where it can be checked.
These are great ways actually to improvise the credit score health.