Many Americans resolve to save money in the New Year. In most cases, savings goals involve a major purchase, which is where your credit score comes into play. Building and maintaining good credit is important when it comes time to apply for a home or auto loan. Additionally, some employers conduct background checks that include your credit score.
The basics of credit
Let’s start with some basics. Your credit profile is based on your credit history and other factors such as a FICO Score, which is calculated using your payment history, balances due, length of credit history, and credit mix.
A few simple rules of thumb, along with some patience and dedication, will help you build and maintain a good credit score.
- Make it a habit to pay bills on time. Making late payments not only leads to late fees and fines; it will actually lower your credit score.
- Make extra payments to reduce lingering credit card debt.
- Set up automatic payments wherever possible.
In addition to knowing your credit score, it’s a good idea to request a copy of your credit report annually. Requesting a free copy from all three agencies, Equifax, Experian, and TransUnion, is easy at www.annualcreditreport.com. It is important to monitor this history of open accounts, balances, and payments because incorrect information can adversely affect your credit score. Be sure to verify the accuracy of your personal information, open accounts, closed accounts (which may appear as still being open), and account balances.
If you find errors on your report, Professor Pig recommends you notify the reporting agency in writing using the procedures that can be found on the agency's website for filing a dispute. While it may take up to 30 days, the Fair Credit Reporting Act (FCRA) requires agencies to respond to you. They often send a free updated copy of your updated credit report as well!
America Saves Week
Celebrated by a variety of organizations including military, financial services, and state and local governments, America Saves Week is an opportunity to develop your savings goals and take steps toward achieving them. This year, America Saves Week is February 24-29, 2020. Mark your calendar and be sure to set aside a little time to evaluate your savings goals.
Professor Pig recommends considering the following categories when planning your savings goals:
- Debt reduction - commit to reducing debt as quickly as possible so you can put more money towards your savings goals and build wealth over time.
- Major purchases - plan major purchases like a new home or car as far in advance as possible. Knowing what you can afford will simplify both the application process and your search.
- Emergency fund - It’s a good idea to have an emergency fund of at least $500. You never know when you’ll be hit with an unexpected auto repair, broken appliance, or medical emergency.
- Retirement – It’s never too early to start saving for your retirement. The longer your funds are properly invested in a 401(k) or IRA, the greater the opportunity for growth.
By making a commitment to saving early in the year, setting goals, developing a savings plan, and setting up automatic deposits, you’ll be well on your way to eliminating debt and building good credit.
Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own attorney or tax advisor about your specific circumstances.