It's hard to believe it's almost 2013. I actually love the end of the year because I adore the holiday festivities. But, believe it or not, I also look forward to the credit housekeeping chores I do every December.
That probably sounds strange, but I enjoy it because I like to enter the new year organized and on top of my credit life. That way, I make much better decisions with my finances.
You can go into the new year on top of your credit world, too. Set yourself up for a great year by doing these four things before the clock strikes midnight on January 1, 2013.
1. Get Your Free Credit Reports
You're entitled to a free annual credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. All you have to do is go to AnnualCreditReport.com, which is the official government site to obtain your free credit reports. (And it's the only one where the credit reports are truly free -- no strings attached.)
Review your credit reports carefully. Look for possible errors, which can drag down your credit score, and make sure your personal information is accurate. You also want to look for signs of identity theft. For example, if you see any accounts that you didn't open or purchases you didn't make, these are warning signs of fraud.
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The Federal Trade Commission details what to do if you find an error or if you suspect identity theft.
2. Check Your FICO Score
Recently, there have been several stories about how many credit scores we all have. It's true that we have a bunch of scores, and they're used by lenders for different purposes.
You can get a free snapshot of your credit score on various websites. But remember that these aren't your FICO scores. That's why they're free. FICO scores are the ones lenders most commonly use when making decisions, and they're the only ones you should spend your money on.
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Now, having said that, I think these free credit scores really do help you keep tabs on the overall health of your credit.
But because the vast majority of lenders use a variation of your FICO score to determine your creditworthiness, it's a good idea to check your FICO score at the end of the year. You can request your score when you request your free credit report (the score isn't free, though) or you can purchase your Equifax or TransUnion FICO Standard score at myFICO.com for $19.95. This site advertises a "free" FICO score, but you have to sign up for a 10-day trial credit monitoring service. It's $14.95 per month and the burden of canceling the subscription falls on you.
3. Review The Current Terms On Your Credit Card Accounts
You could save quite a few bucks by paying attention to these key things:
Look at your APR. If you've improved your credit score significantly in the past year, ask for an interest rate reduction. Another good reason to ask for a lower rate is if you already have excellent credit and your APR seems high compared to the offers you're getting in the mail.
Understand 0% introductory APRs on purchases or balance transfers. Know when the introductory period ends. If you're carrying a balance, pay that off before the go-to rate -- the regular APR you'll have when the intro rate is over -- kicks in.
Check balances on your rewards cards. Know if you're near any limits or expiration dates. Take a look at your balances and plan what you'll redeem the rewards for. Just don't let your rewards go to waste.
4. Set Credit-Related Goals For 2013
Set your sights a little high, but stay grounded in reality. For instance, if you have bad credit, make 2013 the year you improve your credit score. You're highly unlikely to go from bad credit to excellent credit in one year, but getting your score into the "fair credit" category is reasonable.
Another important goal: Deal with any credit card debt you have. If you have excellent credit, you can transfer your debt to a credit card offering a 0% introductory APR on balance transfers. If you don't qualify for the best cards, figure out how much money you can throw at your debt every month. Even if it's only a little above the minimum payment, you'll chip away at it. Be persistent.
If you don't have any debt, good for you. Pat yourself on the back. Stay that way in 2013 by setting up one more goal -- creating a budget and tracking everything you spend on credit cards. It's difficult to stay out of debt if you aren't sure how much you've spent.
The Investing Answer: Do a little year-end credit housekeeping and you'll make smarter financial decisions in the coming year. And when you're informed about your credit life, you'll also be clear about the goals you need to set for 2013.
- By Beverly Harzog
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