With the end of the holiday season, many of us may find ourselves afraid to check our finances — especially our credit card statements. From overspending on gifts, to charging travel expenses, there are a number of common holiday spending practices that could have a negative impact on our accounts this year. Whether you find yourself in an overspending situation due to the holidays, you’ve been struggling to improve your credit over time or you hope to maintain your current credit, here are a few steps you can take to get your finances on track. Get the facts One of the best things you can do for yourself when it comes to establishing, re-establishing or maintaining your credit is to educate yourself. Understanding your credit score and credit report is a good place to start. For example, it is helpful to know that your credit score is determined by the length of your credit history, types of credit in use, new lines of credit, past credit history and amount owed. This knowledge alone should help you get a better idea of where you stand, but you can find more detailed information about credit online or through a financial advisor. To find out exactly where you stand with your credit, you have the option to obtain a credit report. You may access your report from the three major credit bureaus (Experian, TransUnion and Equifax) for free once a year at annualcreditreport.com. Your credit report contains: your identifying information such as your name, address and social security number; credit accounts and loans, including what type of accounts they are, when they were opened, your credit limit, the account balance and your payment history; credit inquiries from creditors or lenders; and public records such as judgments, tax liens and bankruptcies. Your score is calculated based on the report data, but it is not listed on the report. From the information on the report, you can better assess the factors that are impacting your own score. You may also obtain your actual credit score — typically your FICO credit score — but you will likely have to pay for this service. Keep track of your credit Once you know your credit status, you should take a closer look at each individual line of credit or loan to see where you can improve your score. Try making a list of everyone and include the interest rate, spending limit, remaining balance, and payment due date. Having this information in one place will help you to avoid engaging in behaviors that can hurt your score, such as making late payments, maxing out your credit cards, opening multiple accounts in a short period of time, closing accounts with a long-time history and lowering credit limits on existing revolving credit lines. Make a plan In addition to preventing the things that will negatively affect your credit score, you also have the power to improve your score. By making payments on time, bringing delinquent loans current, paying down/paying off credit cards (but not closing them) and moving revolving debt (lines of credit) to installment loans (closed-end accounts), you will see improvements to your score over time. To further engage in these best practices, try making a plan that allows you to make the best of your credit. For example, before you make purchases on a credit card or take out a loan, decide in advance what sorts of products or services these types of credit should be used for. By adopting specific spending practices from the beginning, you can prevent yourself from making impulse purchases and buying more items on credit than you initially planned. On top of deciding what to purchase via credit, decide how you will plan to pay off these purchases. Will you pay them off in increments each week, each paycheck, each month? Or will you pay the full account balance shortly after making a purchase? When making this decision, keep your interest rates in mind and determine which will be most convenient for you while also reducing the total interest you’ll pay over the course of the loan. Be responsible Once you’ve gained a better understanding of credit itself as well as your personal credit history, the best thing to do is to use this information to make decisions that will better your credit over time. Engaging in best practices is worth the effort when it comes to getting your credit on track and achieving your financial goals, and there is no better time than now to get started.
April Clobes is Executive Vice President/Chief Operating Officer for MSU Federal Credit Union in East Lansing. She can be contacted by e-mail or by calling (517) 333-2254.