If you’re not careful, the holiday season can tear down your credit faster than the time it takes to finish off your third pre-breakfast Christmas Day mimosa. It’s that time of year where we let ourselves off the hook from all manner of bad decisions, from how much we eat, how much we spend, and uhhh…how much we swipe right 💀
The good news is that just a few days later, we’re presented with a clean slate. A turn of a page. A brand ✨new year✨
That’s a chance for a fresh start, and the opportunity to put in place healthy habits that undo any bad financial choices of the previous months.
And the good news doesn’t end there, because building good credit is actually pretty straightforward. That’s not to say that it’s easy, but the steps you need to take to improve it are well known and easily defined. So, don’t let all that enthusiasm of the new year go to waste, if you want to improve your credit, here’s how it’s done.
How to build good credit in the new year
Building good credit is all about making sensible decisions with your money. Yeh, it’s obvious, but it pays to lay out the details. The best way to get ahead of this problem is to start small and build up.
Check your credit file
If possible, we want to get you some quick wins to improve your credit score right away. One of the most common issues which damages your credit score is misreporting on your credit file.
Banks and utilities providers may be trying to squeeze you for every last penny, but even then they can sometimes mess up in recording just how much cash they’ve juiced from you 🤡
There could be a ‘missed’ payment from years ago somewhere on your file which is tanking your credit score, and setting the record straight can make it jump almost right away. And of course, Cleo’s got you covered, because you can check your credit score directly in the Cleo app 💅
Take stock of all your debts and bills
Next, you need to know what you’re dealing with when it comes to loans and bills you do have. It can be easy to ‘forget’ how all the little debts from credit cards, store cards, cash advances and buy now, pay later loans add up 😬
So now’s the time to get it all out in the open. Create a new note in your phone (or pen and paper if you want to go Boomer style), and make a list of all the money you owe and bills you have to pay each month. That way you can stay on top of all your payments and budget for them. Keeping your payments up to date is the best thing you can do to improve your credit score over time.
By the way, Cleo can help you here too, with in-built payment reminders and an AI spending tracker that buckets your spending automatically into different categories. Yeh, she’s your do-it-all finance bestie 💁♀️
Once you’ve got all that written down, you should create a plan to pay them off. Yes, it might mean that your next Zara haul has to wait, but we said this wasn’t going to be easy!
Our fave way to do this is called the Snowball Method. First, you need to make sure you’re making the minimum payments on all your debts to keep the credit score gremlins at bay. Next, you take any spare cash you have each month and pay it off your smallest debt. Once you’ve paid that one off, you can take the extra and pay it off your next smallest one and so on.
Over time it means you’ll have fewer debts, making things easier to manage and improving your credit score in the process. Don’t worry if after rent, groceries, bills and one too many DoorDash orders you’ve got, like, $8 spare cash a month. Every bit helps, and you can slowly chip away over time.
Watch your credit utilization
Whether your debt situation is a little out of control or it’s well in hand, watching your debt utilization is a sneaky way to improve your credit score 🥷 We say sneaky, because it’s not as well known, but the point is that if you’re constantly borrowing near your credit limit, it can damage your credit score.
So if you have a credit card with a limit of $1,000, try to keep the balance to under $600. That shows the credit agencies that you aren’t super desperate for cash (even if you are pretty desperate for those new kicks).
Build good credit history
Maybe a spotty credit history isn’t your problem, and instead you actually don’t have any credit history at all 👻 Yeh, it seems weird that having debt can give you a better credit score than someone who’s never borrowed a penny, but Cleo’s got something that can help fix this.
Go soft on the hard checks
The act of applying for a loan or credit card can negatively impact your credit score, even if you don’t take on the debt. It’s called a hard credit check, and too many of these can be a red flag 🚩
The alternative is a soft credit check, which doesn’t go on your file.
Before you apply for anything, even something as basic as a new cell phone contract, make sure you check whether it’s a hard or a soft credit check.
Don’t miss a payment
Ok, seems obvious right, but if you miss payments your credit score is going to have a bad time. The best way to make sure you don’t miss any is to put in place a good budget, and stick to it.
If you really feel like you’re not going to be able to make a payment for your debt, call the company and speak to them about it. There’s no guarantee it will stay off your credit file, but it’s better than sticking your head in the sand and pretending nothings wrong. Don’t make the same mistakes with your money that you make with your relationships 🙃