Your Year-End Credit Checklist

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NEW YORK (MainStreet) – Americans have struggled in 2010 to keep their credit under control.

Earlier this year, FICO, the company responsible for the credit scoring system, said 25.5% of Americans (about 43 million people) had sub-par scores of 600 or below, and the latest data from the Federal Reserve indicate consumer credit card debt increased by $6.5 billion in the third quarter of 2010.

“Many people will end the year with credit troubles,” John Ulzheimer, president of consumer education for SmartCredit.com, tells MainStreet.  This is unfortunate, he says, since there are many advantages to rolling with the credit elite. Still, there are a few steps you can take to start 2011 on the right foot.  Here are five ways to give you and your credit score a happy new year.

Run your credit report. Consumers are eligible to receive one free credit report annually, as part of the Fair Credit Reporting Act, so if you haven’t taken the government up on this offer, then now’s the time to do it. “This should be on your list right next to change the batteries in your smoke detectors,” Ulzheimer says. You can get a free credit report from any of the three major reporting agencies at AnnualCreditReport.com.

Pay off holiday debts before New Year's Eve. “Any debt dragged into 2011 is going to be very expensive,” Ulzheimer says, citing that interest rates currently remain high at around 14.7%. As such, you might want to consider paying off your December credit card bill before it even arrives in the mail. Most cards have mid-month due dates, but paying the bill before Jan. 1 will keep the debt off your credit reports, ensuring you enter 2011 with the best credit score possible.

Don’t close the store cards you opened up during the holiday season.
Saving 10% to 15% off when buying presents in bulk may entice many consumers to open store credit cards, despite their apparent drawbacks and the fact that a large number of credit inquiries can actually drop your credit score. However, closing these accounts once you’ve paid off your balance won’t repair any damage done over the holidays. If anything, it will lower your score even more since terminating an account right after it was opened tells FICO that you couldn’t afford the credit line to begin with. Instead, Ulzheimer suggests keeping the card and using it responsibly. “Don't charge more than 10% of the credit limit and you'll be leveraging them to help your scores,” he says.

Review the fine print on your credit card contract. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 provides consumers with many protections they didn’t have before, but it’s far from being an iron-clad piece of legislation. For example, the CARD Act doesn’t prohibit credit card issuers from raising interest rates; it just makes it a little more difficult for them to do so. It also doesn’t require any notice if your credit card issuer has lowered your credit limit or closed your card.  Because of these stipulations and common misconceptions, Ulzheimer suggests using the New Year as an incentive to review the terms of your credit card contract. “Check your statements closely, or call your issuer to confirm that you'll enter 2011 with an open card with the same credit limit,” he says.
Protect your identity. People should be on high alert for during the holiday season, but, according to Ulzheimer, it’s actually right after New Year’s that cybercriminal come out of the woodwork. “Think about what's being mailed to you: 1099s, W2s, interest statements from your banks, and other highly sensitive tax documents,” he says. “All of them have your name, address and Social Security number [on them].”

Find out how to protect yourself from identity theft.

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