by Michael Poulos, President/CEO of Michigan First Credit Union
The beginning of the year is a great time to evaluate your credit situation and establish good financial habits. Unlike some other New Year’s resolutions, getting a handle on your credit will benefit you long after you give up trying to quit smoking or stop going to the gym.
In order to get your credit on track, two factors must be considered: the current state of your finances and what your credit report looks like.
To determine your financial situation, track your spending and saving habits. Determine money going out (bills, food, transportation, clothing, etc.) and compare it to money coming in. Do you have enough to save? Are you just barely making it work every month? Then, try to predict any major financial events that could happen over the year. Vacations, weddings, college, medical expenses – some of these occurrences could call for extra cash on hand. Once you’ve established these parameters, find out where you can cut back and start setting some goals. Set an amount of money you want to keep in your savings account, pledge to pay off a credit card, or perhaps overpay your mortgage by $50 per month. Knowing your current financial situation is the first step toward a healthy credit score.
The second part of re-evaluating your credit is to check your full credit report – you are entitled to one free credit report per year from each of the three major credit bureaus (TransUnion, Experian, and Equifax.) You can get this report at AnnualCreditReport.com. Check the documents thoroughly to make sure there are no errors or incorrect information. If you aren’t sure what you’re looking at, sit down with someone who does – the team members at Michigan First Credit Union are more than happy to assist and help you figure out what you’re doing well and which behaviors could be improved.
If you discover your credit score is on the low side, the first step is to make sure you get your finances in order and start paying every bill on time. Payment history is the most important component of a credit score, so paying bills on time is the number one thing you can do to improve your credit. Ask an expert to review your credit limits and help you increase your credit capacity – that is, the difference between the credit you have access to and the balance you owe. In some situations, a financial professional may suggest consolidating credit card debt with a loan to make it easier to manage. In any case, team members at Michigan First will help you on the path to healthy credit.
In the case of a great credit score, it is important to understand why your score is so high and to continue the behaviors that contributed to that success. Again, it’s always a good idea to get some solid financial advice to help you keep your credit on track throughout the coming year—and beyond.
(Image courtesy of FrankieLeon via Flickr Creative Commons)