Preparing for Next Year Now - Here's What to Focus on to Manage Your Credit

It's that time of the year when many of us take stock of how the year went, our accomplishments as well as our challenges, and determine a set of new resolutions for the coming New Year. Some of the more common resolutions range from sticking to an exercise regime to spending less time on your phone, to giving more time to those in need. Boosting your financial health is another common area of focus for many people.

Like most objectives, it's always a good idea to set doable goals. 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?

  1. Pay all your bills on time.

  2. Don't charge more than you can pay off each month.

  3. 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 debt.

What goals work for this situation?

  1. Set a repayment plan based on what you can afford to pay each month.

  2. 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

  3. 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 - Review your FICO® Score

What can you do about this?

  1. Understand how your FICO Score is affected by your credit behavior and what factors are considered

  2. Monitor you score so you know when your score qualifies for the rate you want.

FICO Scores are dynamic — moving up or down as the information in your credit report changes. How frequently your scores change and by how much depends on several factors, including the overall composition of your credit profile, in addition to what new underlying reported information is being considered by the scores.

Do you have a "rainy day" fund you can tap into if necessary?

  1. Most financial planning professionals recommend an emergency fund that covers three to six months of average monthly expenses.
  2. Start smaller if you need to — even a $500 emergency fund can give some peace of mind that you have some level of resources if needed.

We all know from experience that life sometimes throws a curve ball and effectively handling that curve ball is a lot easier if you are prepared. An unexpected car repair, an unanticipated medical situation or a loss of employment can happen to any of us, and they all require some degree of reserves to address.

Approximately 26% of adults have no savings set aside for emergencies and an estimated 38 million households in the U.S. live paycheck to paycheck — meaning they spend every penny of their paychecks. In many cases, these individuals end up relying on credit to cover unexpected expenses, which may add to already high debt levels and negatively impact their access to affordable credit.

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. 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!