It’s almost time for New Year’s resolutions, and one of the biggest things people have is getting their personal finances in order. An important aspect of the overall financial profile is creditworthiness. A good credit score means that you will have access to loans with lower interest rates. It is also important to qualify for mortgages and other large loans.
While these aren’t so much “hacks” as “strategies”, we still think it’s important to share these opportunities so you can improve your credit score in 2021.
Hacks to Improve Your Credit Score in 2021
Snowball your credit card debt
Your credit card debt is one of the biggest things holding back your credit score. If you have credit card debt, this should be the first debt you address as it will have the greatest impact on your creditworthiness and can cost you many times more than the principal in interest.
One of the best ways to see how early the creditworthiness of your credit card debt is “winning” is to snowball your debt. We wrote an entire article about snowball debt that you should definitely read.
In short, in order to snowball your debt, you need to focus all of your debt repayment efforts on the smallest of balances to pay them off quickly. This does two things at the same time: First, as you increase your debt, it lowers your monthly debt repayment obligation (although you will likely be setting the same total amount each month on your debt). Second, when you pay off your debt, it reduces your total balance, which improves your credit score.
This debt reduction strategy is one of the best ways to quickly boost your credit score while meeting a torturous debt obligation.
Remember, when you pay off your credit card debt, you want to keep old accounts open and available to you! There is no need to close an old credit account. Instead, leave them open and have explanations sent to your email every month.
Refinance your debt
If you have high interest rate debts, there are ways to refinance them. Refinancing is when you take out a new loan to repay an old one. This usually happens when you can get lower interest rates on refinancing a loan. This also happens when consolidating multiple loans. This is a great way to get a grip on debt payments.
Refinancing your debt doesn’t instantly increase your credit score. In fact, it can be reduced in the short term. However, there are refinancing strategies that can help you improve your credit score this year. If you are able to make payments before you couldn’t afford them, your credit score should slowly go up.
There are many different ways to refinance your debt obligations, including your mortgage, student loan, and other large sources of debt.
The most important thing about refinancing is to consider the long term implications. Refinancing your student loan can save you thousands of dollars over the life of the loan.
Get your annual credit report and disputes
If you don’t know what’s on your credit report, you may be an ignorant victim of fraud or typographical errors committed by lenders or credit bureaus.
In 2020, the federal government issued unlimited copies of your credit report to ensure people got access to their credit history during these troubled times. You can still get one free credit report per year from any of the three offices at https://annualcreditreport.com. Check your credit report and see what it says: you might be surprised.
If you are surprised about something you see on your credit report, it may be time to make some calls. First of all, you want to contact the relevant lender to find out what is on record on your behalf. This alone could eliminate errors. Next, you’ll want to call the credit bureau that issued your report (Experian, Equifax, TransUnion). You will then be guided through the dispute process, which can take several weeks to resolve.
At The Credit Pros, we can help you resolve disputes. Find out more about how the dispute process works!
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Credit Score Hacks for 2021
It is almost time for New Year’s resolutions, and a good credit rating means you have access to loans with lower interest rates. Click here to read more.
Jason M. Kaplan, Esq.
The credit professionals