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3 Credit-Healthy Habits for the New Year

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New year, new credit score. If only it were that simple. Sadly, you won’t start with a fresh new when the clock strikes 12. 

But just because a financial redo isn’t in the cards doesn’t mean you’re stuck with your score forever. Your credit is a reflection of everyday credit decisions and long-term habits. Change these, and you’ll be able to affect your score. 

So, if you’re tired of dealing with the fallout of your bad credit, consider adding these new habits to your financial routine. 

1. Pay Your Bills on Time

Did you know that paying bills late costs the average household $577 a year? That’s because creditors will heap on interest and late fines when you’re late. You may also see a dent in your credit score if your overdue payment gets logged in your credit file. 

Nobody plans to pay their bills late on purpose, but it still happens. Try these steps to help you avoid missing an important due date:

Use a budget app that reminds you of payments

Automate recurring bills

Discuss a payment plan with your creditors to adjust your payment size and schedule to fit your finances

2. Apply for Consumer Loans 

Before you get any further, let’s answer a basic question: what is a consumer loan? For those who don’t know, a consumer loan is any personal loan you may take out in your lifetime. It’s a broad collection of borrowing options that include mortgages, auto loans, student loans, and installment loans. 

It’s inevitable that you’ll rely on at least one of these consumer loans, but you should be selective about when and how you borrow. Remember, each loan is just another bill you’ll have to pay, so only borrow when you absolutely need to — not when you want to. 

It’s not always easy to tell the difference, so here’s a quick comparison to see how these two things differ:

Need: You may need to borrow an installment loan when your car unexpectedly breaks down one day, and you don’t have the savings to pay the tow truck company and your mechanic. 

Want: Your mechanic can’t salvage your old beater, so you’re in the market for a new car. You take out a loan with expensive monthly payments for a luxury vehicle rather than sticking with a sedan that’s in your budget. 

3. Pay off Your Credit Card and Line of Credit in Full

A line of credit or credit card comes with a minimum balance. It’s usually a flat fee or percentage of your full balance, which makes it handy if you’ve hit a rough patch and can’t pay off your account. As long as you make the minimum, you won’t lower your score with a late payment. 

You will, however, increase what you owe over time if you only make the minimum. That’s because any money you carry over into another billing period is subject to interest. 

By paying your balance to zero each month, you’ll reduce how much interest you’ll pay and appreciate these two perks:

You’ll have more credit available in case of an emergency

You’ll reduce your credit utilization rate, which may have a positive impact on your score.

Stick with It!

You may not see a drastic change in your score as soon as you start paying bills on time. Although it’s a sensitive three-digit number, it depends on what’s already in your file. So don’t give up! Stick with it, and you’ll see your score go up eventually.

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