Your Year-End Credit Checklist

Credit Check

As 2011 winds down, credit card spending is actually starting to pick up. This can be a good thing for consumers who are responsible with their credit – but potentially problematic for those who aren’t. If you’re not sure where you fall on that spectrum and how you should proceed with your payment choices in the new year, a credit check may be in order. MainStreet goes over the handful of credit considerations you should review this time of year to make sure you’re building your credit and managing any debt. Photo Credit: Getty Images


Find Out Your Credit Score

As you may already know, everyone is entitled to a free credit report from one of the three credit bureaus – Experian, TransUnion or Equifax. This report can be obtained through AnnualCreditReport.com, and those who haven’t taken a look at theirs should do so before the year is up. However, you should also be willing to “pay the extra $10 to see your credit score as well,” says J.J. Montanaro, a certified financial planner at USAA, since your score is not included with the free report and will give you an even better idea of where you are in terms of your overall creditworthiness. Credit models vary, but to review, the popular FICO score is based on a scale of 300 to 850, while the Vantage Score has a range of 501 to 990. Photo Credit: Getty Images


Set a Clear Goal

It’s a good idea to go over your credit report and its accompanying score, but the goals you set as a result of this review shouldn’t be as broad as “I want to improve my creditworthiness in 2012.” Instead, “have a specific target in mind instead of a vague notion of what should happen moving forward,” Montanaro says. For instance, if you’re maxing out your lines of credit, you may want to focus on improving your credit-to-debt ratio. If you score itself is too low, you may want to set a specific point target you’re looking to hit before you apply for another loan. Setting specific goals should increase your chances of making the improvements you are hoping for by this time next year. Photo Credit: Getty Images


Pay Down Your Debts

If your credit to debt utilization ratio is too high, you might want to try paying off some bills. Those interested in seeing a quick boost to lackluster scores should start with their credit card debt. “Installment debt doesn’t have as much of an impact on your score,” John Ulzheimer, president of consumer education for SmartCredit.com, told MainStreet back in April. “Paying down credit card debt will give you more bang for your buck.” But remember, to get a short-term boost you’ll need to put your credit cards on ice, as credit bureaus often receive information in real time. That means that the report of someone who pays off their monthly credit card bill but then goes right out and buys a brand new television is still going to show up as having a balance to the tune of the cost of the TV. And that’s not going to help your score at all. Photo Credit: Getty Images


Diversify

If you find yourself in good but not great credit shape, it might be time to diversify the types of accounts appearing on your credit profile. The credit elite – generally speaking, those with credit scores of 760 or higher – don’t have just one credit line. Instead, they have a careful balance of installment accounts (these require consumers to pay a fixed amount each month until the entire balance has been depleted, like a mortgage) and revolving accounts (these limit the line of credit, but have balances that fluctuate, like a credit card). This essentially means that you shouldn’t let the fear of hurting a decent credit score prevent you for taking on an auto loan or a mortgage. When paid off correctly, they can actually have a positive influence on your score. Photo Credit: Getty Images


Add a Card to Your Arsenal

Those in good shape can also consider adding a new piece of plastic to their payment arsenal. This is because having more than one credit card – again , when used correctly – can positively impact your score. (The FICO model, for instance, rewards consumers for having an “ideal” number of credit cards and, while it varies from person to person, it’s typically between two to four.) Additionally, issuers have been offering rich sign-on bonuses and ample rewards to widen their consumer base, and there is no reason why a consumer with a high credit score shouldn’t take advantage of the perks it affords them. This is especially true if they’ve been building credit with the same no-frills secured card they opened up in college. You can find some of the better rewards cards with no annual fees in this MainStreet roundup. Photo Credit: Getty Images


Negotiate Your APRs

If your credit score has improved dramatically over the last year, you may want to call up your issuer. Contrary to what you may be led to believe, the annual percentage rates associated with a credit card aren’t necessarily set in stone, especially if credit card solicitations indicate that you can do better than what you’re currently paying. Consumers call up their credit card company and tell them about the lower offers they are receiving in an effort to get their current APRs lowered. More often than not, “the fear of losing your business will usually make them match the offer,” Derrick Kinney, a financial adviser who specializes in helping families, told MainStreet in September. Photo Credit: Getty Images


Do a Balance Transfer

If you have a lot of outstanding credit card debt that you won’t be able to pay down immediately, you might to take another issuer up on one of the better balance transfer deals that are currently on the market. Balance transfer credit cards allow consumers to move high interest debt they carry on existing credit cards to a new one that charges little to no interest, at least for an introductory period. Consumers should look for introductory periods that last anywhere from 15 months to two years and check to see if there is a transfer fee, which shouldn’t be more than 5% of the balance. Photo Credit: Getty Images


Enroll in Credit Monitoring

If your credit score is below average (typically below 600), it might be time to seek some outside help. “Check into credit monitoring services,” Montanaro says. These services typically provide alerts when big changes appear on your credit report and provide notifications for when bills are coming due. For those in true dire straits, he also suggests visiting the National Foundation for Credit Counseling’s website to find a third-party who can help you improve your credit profile. Photo Credit: Getty Images


Cash In on Your Rewards

If you haven’t used your rewards points yet this year or have completely forgotten about your frequent-flier miles, now may be the time to cash in. While issuers have largely done away with expiration dates, the rewards are only worth something if you actually use them. You can check out this MainStreet article to find out what types of unique rewards your credit card might be able to net you. Photo Credit: Getty Images


7 Terms That Will Kill a Rewards Deal

Are you considering signing up for a new credit card in 2012? Check out which seven terms will kill a credit card rewards deal before settling on an option! Photo Credit: Massimo Norbiato


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Join the MainStreet team and other readers on our lively Facebook page! Discuss our newest stories and get links to breaking content, automatically. Click here to add us.   —Jeanine Skowronski is staff reporter for MainStreet. You can reach her by email at Skowronski.jeanine@thestreet.com, or follow her on Twitter at @JeanineSko. Photo Credit: lawtonchiles


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