Preparing for next year now - here's what to focus on.
Last December I vowed to really focus on managing my credit better. It turns out that this was one resolution I really faltered on. I just checked my FICO score and it's worse than last December. Can you help me figure out the best way to prevent falling into the same situation this coming year?
Los Angeles, California
Don't beat yourself up too much about breaking last year's promise to better manage your credit. I vowed to eat less chocolate this year and I didn't make it through January. The fact that you're seeking advice means you're serious about taking control of your credit. It's when you bury your head and pretend your credit problems will fix themselves that you can really get in trouble.
Like most objectives, it's always a good idea to set doable goals. I might have stayed true to my chocolate cutback if my goal was to only eat one Butterfinger bar each month. In your case, your goals should change the behavior that's hurting your credit while not being so stringent that you abandon your vow just because it's too stressful or rigid. Without knowing your specific credit situation, here are some examples of attainable (yet realistic) credit goals:
Objective - Improve my credit standing this year. What goals can you set to help you achieve this goal?
Pay all your bills on time.
Don't charge more than you can pay off each month.
Don't open new credit accounts that you don't need.
These goals seem pretty simple, but if your credit is in trouble, I bet that you've broken at least one of these rules. You probably have specific areas of your credit that you need to work on, so make a plan that addresses you exact problem areas.
Objective - Get out of credit card debt. What goals work for this situation?
Set a repayment plan based on what you can afford to pay each month.
Prioritize your credit cards so you pay any card with past due amounts first, then pay more to the ones charging you the highest interest rates
Don't fall back into the overspending pattern that got you in credit card debt in the first place.
Again, these are rules that you can probably live with. The key for credit card debt is to set a repayment plan and stick to it. It's easy to rationalize that a shiny new iPhone is worth carrying a bit more debt, but that rationale might hurt you in the long run.
Objective - Raise my FICO® score so I can get a good rate on a car loan. What can you do about this?
Ask the auto lender what your score needs to be to qualify for the loan you want so you know what score range to shoot for
Understand how your FICO score is affected by your credit behavior and what factors are considered (this free booklet is the best place to start)
Monitor you score so you know when your score qualifies for the rate you want.
For all of these objectives it's a good idea to keep tabs on your credit throughout the year. There are many products that allow you to do this, so do some homework and chose the best one for your situation - we recommend monitoring your score from a single bureau. Doing this usually gives you an indication of what happening with your credit in general so you can feel confident you're heading in the right direction. Best wishes for the New Year and may all your credit decisions be good ones!