View all Personal Finance articles

5 Things to Put on Your End-of-Year Credit Checklist

The end of the year is often a time of reflection for many, which can help you plan and set goals for the coming year. Your financial wellness is an essential aspect of your life, and that includes your credit.

Your FICO® Scores are an important indicator of your overall credit health. Understanding where your credit stands and how you can take advantage of an improved FICO Score could be an important part of your goal-making process for the upcoming year.

As you evaluate your situation and future plans, here are five things to add to your end-of-year credit checklist.

1. Check Your FICO® Scores and Credit Reports

Your FICO Scores are calculated using the information found in your credit reports from the three national credit bureaus, Experian, Equifax, and TransUnion.

Checking your FICO Scores will give you a basic idea of where you stand with your credit health. Your FICO Scores will fall under one of the following categories:

  • Exceptional: 800 to 850
  • Very good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Very poor: 300 to 579

Depending on which range your FICO Score falls under, you'll know whether you need to work to make some improvements or simply continue to maintain your good credit habits.

In addition to checking your score, it's also important to check your credit reports. You can get a free copy of each credit report at AnnualCreditReport.com weekly through April 2021. After that, you can get a free copy of each report every 12 months.

As you review your credit reports, look for areas that you might need to address. Examples may include getting caught up on past-due accounts, paying down credit card balances, or disputing inaccurate information.

Improving your credit can take time, but your efforts can pay dividends over time.

2. Check Your Credit Card Balances

Amounts owed is the second-most influential factor in your FICO Scores, making up 30% of its calculation. Your credit utilization rate—the percentage of your available credit on credit cards that you're using at a given time—is an important element of how much you owe.

For example, if you have a credit card with a $5,000 balance and a $10,000 limit, your utilization rate is 50%.

The higher your utilization rate, the more of a sign it could be that you're relying too heavily on credit to get by, even if you pay your bill in full every month. So if your utilization rate is high, make it a goal in the coming year to pay down your balances and keep them low going forward.

There's no hard-and-fast rule for what your utilization rate should be, but the lower it is, the better.

3. Set Up Automatic Payments

Your payment history is the most important factor in your FICO Scores, so it's crucial that you always pay your bills on time. If you're late by 30 days or more, the lender can report the late payment to the credit bureaus, which could have a significant negative impact on your FICO Scores.

To avoid even the potential of missing a payment, go through all of your accounts, and set up automatic payments. In addition to helping you stay prompt on your payments, setting up autopay will also save you the time it takes to make those monthly payments manually.

One potential danger to setting up automatic payments is the potential of not having enough cash in your bank account to cover each one. If you can, it's a good idea always to have a buffer of at least a few hundred dollars in your checking account to avoid a returned payment or an overdraft fee.

4. Look for Opportunities to Refinance

If you've made some strides with your FICO Scores this year, you may be able to start reaping the rewards of your efforts. More specifically, you may be able to refinance some of your debts at a lower interest rate, saving you money by getting you a lower monthly payment.

Write down each of your debts, including their balances and interest rates, and then look at the current market rates for those types of debt. For example, if you got an auto loan at 8.5% and the current rates are closer to 3%, an improved credit score could allow you to take advantage of those lower rates and save.

Next, check your credit score to see how much progress you've made, and start shopping around to see if you can actually save with a refinance. Many lenders will allow you to get prequalified, a process that allows you to see loan offers based on your credit profile without affecting your FICO Scores.

That said, some refinances include closing costs, so while you're considering your options, compare the costs to the potential savings to determine whether it's worth it.

5. Check Insurance Rates

FICO estimates that approximately 95% of personal insurers use what's called a credit-based insurance score in states where it's legally allowed to help calculate your monthly premiums.

This means that if you've improved your credit over the past year, you may be able to score a lower rate on your insurance policies.

Try to get quotes from three to five insurance companies in your area to get an idea of whether you can get a lower rate than what you're paying right now. During this process, make sure you match the coverage options to what you have covered now to ensure you're comparing apples to apples.

There's no guarantee a better FICO Score will result in a better credit-based insurance score, which could lower your insurance rates. Many states don't allow insurers to use your credit-based insurance score, but the potential savings are worth the time it takes to check.
The bottom line
As you evaluate the progress you've made financially over the past year and set goals for the next one, don't forget to spend some time on your credit history. Improving your FICO Scores can not only make it easier for you to qualify for favorable terms when you apply for credit, but it may also help your credit-based insurance scores and save on your insurance costs.

As you work through these five steps on your checklist, think about other ways you can improve your FICO Scores. As you make a plan, use the free FICO Scores estimator to get an idea of how your efforts may directly impact your credit health.

Ben Luthi

Ben Luthi has been writing about money and travel for seven years. He specializes in consumer credit and has written for several major publications and industry leaders, including U.S. News and World Report, Fox Business, Wirecutter, Experian, and Credit Karma.