Get ready for a credit card spring cleaning
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Spring is in the air, and what better way to celebrate than with a credit card spring cleaning!
(Really – we’re serious.)
Just like a thorough spring cleaning improves your home and gets everything in tip-top shape, a credit card spring cleaning will make a difference in your financial situation.
After you clear any cobwebs and before you take on your cluttered basement, consider these five cleaning tips to use on your credit card debt.
1. Take Inventory
Take an inventory of your consumer credit cards. Pull out seldom-used credit cards tucked away in the recesses of your purse or wallet or stashed in the bottom of your junk drawer. Destroy any cards you no longer use.
For those cards that you do use, try not having the plastic at your fingertips. This prevents you from increasing your debt.
2. Review Your Credit Reports
One in three Americans has never checked their credit report, according to a Bankrate study.
The information in your credit reports is used to calculate your credit scores — those three-digit numbers that help determine whether lenders approve you for new credit and what interest rates they offer you. In some states, employers can request access to your credit reports during the job interview process, because your credit history is seen as a reflection of your overall reliability.
Annualcreditreport.com now allows weekly updates of all 3 bureaus. If something’s inaccurate, there are ways to reach out to credit bureaus for resolution.
It’s a “one-stop” to check your reports from Experian Equifax, and TransUnion – the three industry-standard credit bureaus.
3. Take a Deep Dive into Credit Scoring Categories
After you’ve reviewed your credit reports for accuracy, it’s a good idea to learn how your information and activity are used for credit scoring.
To understand how your credit score is calculated, know that each credit bureau has its own methods of scoring. They generally follow a similar calculation that weighs usage and activity in the following ways:
- Payment history (35%): A history of your credit usage allows lenders to grade your level of risk and dependability. It accounts for the largest chunk of your credit score (35%), so it’s important to pay your bill on time and avoid risky behavior.
- Amounts owed (30%): Also known as credit utilization, this category compares your overall debts owed — e.g., credit card balances, mortgages, auto loans, etc. — and compares them to your credit limit.
- Credit length (15%): A lengthy credit history is a sign of responsibility. This category looks at the age of your oldest credit account and the average age of all your credit accounts.
- New credit (10%): This category is a balancing act of action and restraint. While it’s important to open new revolving and installment accounts to keep your report active, too many credit inquiries can lower your scores.
- Credit mix (10%): The credit bureaus value experience, so they like to see a mix of different kinds of debt — credit cards, installment loans, mortgages, etc.
4. Address Your Debts
Nearly half of all Americans carry credit card balances from month to month. With a healthy history, your credit card provider may be willing to lower the APR on your balance, making it easier to tackle the principal amount. Contact customer service and ask about their policies.
Another idea is to better track and manage monthly spending in favor of debt reduction. For example, consider canceling your expensive cable service in exchange for a streaming service. If utility bills are high, ask for a free energy audit of your home to identify money-wasters. Freeing up extra monthly income can help you take control of your debts and improve your credit score in the process. A spending plan worksheet can be of great help.
5. Safeguard your Identity
We regularly hear about data breaches that impact consumers. Be sure you are doing all you can to monitor and manage your online safety, from better password management to signing up for Equifax’s free credit monitoring service to safeguard your information.
Store your social security number, online passwords and other identification in secure locations or protected password management file. While you can’t always control who sees your information, you can take a proactive stance when it comes to identity theft.
The Benefits of Credit Card Spring Cleaning
A credit card spring cleaning is a good chance to understand maintenance you might need to get things in order and improve the performance of your overall financial situation. You might also look into a debt management plan for additional options.
GreenPath offers free financial counseling and education to support people in meeting their financial goals. Greenpath’s professional, caring financial coaches will work with you to assess your situation, explain the options or solutions available, and help you create a spending plan to meet your goals.