Getting back on track financially should be at the top of everyone’s New Year’s Resolutions. Financial stability arguably should come before everything else, even losing weight. Without healthy and stable credit, your 2020 vision will be unbalanced.
Don’t exercise your grace period; make sure you pay everything on time.
During a grace period, you’re typically not being penalized for missing your due date. If it’s a credit card payment, you’re not accruing interest or being assigned a late fee. The creditor is giving you — as the name implies — “grace” so you can have extra time to gather funds for the payment. A grace period can last anywhere from a few days to a few weeks, depending on the type of debt and creditor.
But be warned. There is no mercy following this grace. You’ll be slapped with late fees and a negative credit report if you fail to pay before the period expires. In 2020, make it a point to pay your bills by the due date
Why? Because life happens, including unexpected medical bills, payments for sudden school trips the kids forgot to mention, car repairs, and the list goes on and on. If you’re accustomed to relying on the grace period, you’ll be in a merciless predicament if you ever truly need the extra days
Keep your credit card balances low
The magic number is 10 percent of your available credit limit. The algorithms used to create your credit score reward you for showing restraint. The credit bureaus view it as a sign of maturity to have access to credit, but not use it.
To keep your balances low, we recommend getting in the habit of paying your balances down every month. It may require a new mindset for 2020: Use credit only when you are certain the item will be paid off before the bill is due
Avoid closing all of your credit cards
We get it; you want a fresh start and cutting up the cards feels satisfying, but it can create damages later. Notice in our previous New Year’s credit resolution, you are rewarded for showing restraint. Having access to credit and not using it shows mature restraint. However, if you close your card, there’s no proof of restraint. In mathematical terms, closing credit cards hurts your credit utilization ratio.
Also, if you close the wrong credit card after it is paid off, you could inadvertently be shortening your overall credit history. For you, that card’s history is probably a painful reminder of your struggle to finally break free from the high interest debt. For credit bureaus however, your credit history depicts maturity. Length of credit history accounts for 15 percent of your credit score, according to a Bankrate.com article on how credit score is measured.
Stop allowing multiple credit inquiries
The average inquiry takes away one to three points from your overall credit score. Viewing your own score is referred to as a soft inquiry, and it doesn’t hurt. A hard inquiry is when a potential creditor is taking a serious look at whether to offer you credit for a purchase; they’ll charge you a few credit points for that inquiry. Looking for new credit can translate to a higher risk.
The timing of those inquiries matters, too. You are viewed as a risk if you open several credit accounts all at once.
Pay your medical bills
There’s a dangerous myth circulating that medical bills won’t count against your credit score. (See New Year’s resolution No. 1 about “no mercy”). To be sure, hospitals and doctors are not reporting delinquent patients to the credit bureaus. Instead, they will turn your unpaid accounts over to a collection agency who will report the debt.
It is true that in some newer credit score calculations, medical debt carries less weight. However, some mortgage lenders may still use older versions of credit scores where medical debt is viewed just like any other unpaid account. It’s best to stay on the safe side and pay your medical bills. It can be a challenge because medical costs are going up and insurers are notorious for denying claims. You might have bills from several different office visits, with different physicians. Always follow up with your doctor’s office and insurer to verify if you have a balance. If you don’t, you might get an unfortunate surprise to your credit score.