Recent updates to FICO’s credit scoring model are making it easier to build good credit, which is a major plus if you’re planning a big financial move like buying a home. If you’re not ready to sign your life away on a mortgage, but have made recent improvements to your score, check out six smart moves you should make.
1. Get a credit card if you don’t have one
Using a credit card to establish good credit is easy, but millennials are still notoriously cagey about paying with plastic. More than a third of 18 to 29-year-olds don’t have a credit card in their name and if you’re one of them, you’re doing yourself a major disservice, financially.
Thirty-five percent of your FICO score is based on your payment history. When you make purchases with a credit card and then pay the bill each month, you’re adding positive information to your credit report, which pushes up your score. If a low or zero FICO score kept you from getting a credit card in the past, the recent changes remove that obstacle.
Tip: Pick a card that offers free FICO score access so you can see how you’re doing each month.
2. Trade up to a better deal on your rewards card
If you’re already a pro at using credit cards, a jump in your credit score is a good excuse to review the kind of rewards you’re earning. A number of upper tier cards, such as the Chase Sapphire Preferred card, offer premium rewards and perks but only to people who have a solid credit score.
When you’re comparing rewards cards, look at the kind of points or miles you can earn as well as the sign-on bonus. Many cards offer a sizable bonus when you open a new account but you’ll have to meet a minimum spending requirement to get it. If the card has an annual fee, add up the amount of rewards you stand to earn to see if they’ll cancel it out.
Tip: If you primarily use your rewards card for overseas travel, look for one that doesn’t charge any foreign transaction fees.
3. Transfer high interest balances
The interest can be a killer if you’re carrying a balance on your credit card each month but qualifying for a 0 percent promotional offer usually depends on your credit score. If you’ve recently gotten a bump, transfer your debts to a new card with a lower rate to save some money.
The two most important things to focus on with a balance transfer are the fee and how long the promotional period is. The typical balance transfer fee is 3 percent of what you’re transferring and it gets tacked on to the balance at the end. For a $5,000 transfer, you’d effectively be inflating your debt by $150.
As far as the promotional period goes, you’ll find a lot of variation from one card to another. Some cards may only give you the 0 percent rate for six months while others may extend it for 15 or 18 months. You need to be clear on how long it’s going to take you to get the card paid off before the regular rate kicks in.
4. Upgrade your second chance checking account
Second chance checking accounts are designed for people who’ve had a misstep or two with their bank account but are trying to get back on the right track. While they’re a better alternative than using prepaid debit cards to manage your money, they tend to carry higher fees than a regular bank account.
Banks use information from ChexSystems when approving new account applications but they can also take a peek at your regular credit report. If you’re tired of paying the higher fees that go along with a second chance account, an improved credit score makes it easier to switch to an online or mobile-only bank where the costs aren’t so high.
5. Refinance private student loans at a bank
Student loans are a thorn in the side of many a college grad these days and private loans typically have higher interest rates than federal loans. Private loans can have fixed or variable rates that go as high as 18 percent, which is three times more than what you’d pay for the typical federal loan.
Fortunately, there are a number of banks that allow you to refinance private loans so you’re not throwing away so much money on interest. Along with a steady work history and income, you’ll need a good credit score to lock in the lowest rates. If you’ve seen an uptick in your score because of the FICO changes, refinancing needs to be at the top of your to-do list.
Tip: Aside from getting a better deal on interest, refinancing private student loans may allow you to remove a cosigner.
6. Lower your insurance premiums
Your credit score is basically a numerical representation of how much of a financial risk you are. The higher your score, the more favorably lenders are likely to see you and the same goes when it comes to insurers.
Ask about lowering your car insurance or renter’s coverage, and if they are not able to lower rates for you, consider switching insurance companies.
Just be sure to check with your current insurer to make sure there’s no penalty for making a move. Some companies may charge a flat fee or a percentage of the remaining premiums due if you cancel before your term expires.
A good credit score is a waste if you’re not using it to your advantage. Doing these six things won’t take up a lot of your time and the can save you a nice bundle of cash in the long run.
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