If you want to improve your finances this year, why not make a New Year’s resolution for 2016? It’s okay if you make it late. The point is that you make it and then work towards adhering to it.
Fidelity recently did a study and which showed that 37% of Americans thought about making a resolution in 2016 that was related to money, and many of those who previously made money-related resolutions said that they were in better shape this year than they were previously.
Ken Hevert, the senior vice president of retirement at Fidelity, commented that making the resolution alone would not guarantee anyone financial prosperity, but it could motivate you to get straight with your finances.
You must be able to clearly identify what your objectives are. You should not be okay with settling for some generalized statement like “I want to have good credit.” What you need to do is create a smaller, specific resolution that is going to motivate you towards action and therefore achieving your higher goal. Let’s have a look at 6 smart resolutions that you should know about and consider for 2016.
#1 Regularly monitor your credit
It’s true – monitoring your credit is certainly not the most exciting resolution you could make for the New Year, but by making this resolution you will learn a lot about the kinds of actions that have a direct effect on your credit score, and you also may be able to catch any fraudulent activity early. The Identity Theft Resource Center reports that at least 750 data breaches occurred in 2015, which really highlights just how important it is for you to keep a close eye on your credit. Typically, lenders report to the credit bureaus monthly at various times, so setting a goal to look at your credit report monthly is a great idea.
#2 If you see an error on your credit, report it!
We cannot stress just how important it is to ensure your credit report is accurate. Many lenders rely on credit scores to determine if they should or should not lend you money. Their decision is based on information found in your credit report, so if that information is inaccurate, you may be turned down for a loan that you otherwise would have been approved for.
How to check. You can request your credit report via post or online. After you receive it, you will need to go over it carefully, marking anything you dispute and ensuring you have proof to back that dispute. The credit bureau is usually required to investigate any dispute that is filed and respond to you within 30 days.
#3 Use your credit card less
Credit cards that are maxed out are bad news for a couple of reasons – they negatively affect your cash flow and your credit score. That’s because your credit card usage is part of the scoring model, and in some models it weighs heavily. Your total balance divided by your total credit card limits is calculated, and when your total credit limit is near maximum, it can cause your credit score to drop. Keeping your credit card usage below 30% is a good rule of thumb to follow.
#4 How to lower your utilization rate
There are different ways you can do this.
If your credit card provider has not increased your limit in some time and your payment record is good, then you could ask for an increase on your credit card limit. Just remember that this can also cause a hard inquiry with the credit reporting agencies.
To keep your balance down think about making more than just your one credit card payment every month.
Consider using your credit card less, whether this means spending more cash or spending less because you actually have been spending beyond your means. It depends on your situation.
#5 Always pay on time
Your credit score helps lenders have an idea of how you are likely to repay your debts in the future based on how you have been paying them in the past. Your on-time payment percentage is an important factor used to calculate your credit score. This means it is a good idea to make sure that you are always making timely payments.
How to do this. If you are notorious for forgetting to make payments, think about opting into the automatic payment option that is provided by most credit cards and service providers. You could also have a text or email alert sent to remind you when your billing due date is nearing.
#6 Save for emergencies
Saving for an emergency can really reduce your stress level, and it can also help keep you from experiencing a ruined credit score in case you have an accident, lose your job, or find yourself with a “big” medical bill. Having an established emergency fund helps prevent you maxing out your credit cards or taking out additional loans with high interest rates and unfavorable terms that in the end may have a negative effect on your credit score.
How to do this. Unless you spend 100% of your income on necessities, you should begin to prioritize saving by first paying yourself on payday. You can set an amount or a percentage, it’s up to you. This should go directly into your savings account. Another option would be start really small. For example, take all your change and put it in a jar, or every payday take just $5 and put it aside. Once you are in the practice of saving and paying yourself first, it will become much easier. You know what will work best for you. Find a strategy that will work for you and then stick with it.
At the end of the day
The start of a new year is the perfect time to decide to work on any part of your life. Whether it’s your health, lifestyle, or finances, you have the power to keep your resolutions, and your credit resolutions are no different.