10 Ways to Spring-Clean your Credit
By Allie Johnson
May 30, 2013
The sun is shining, daffodils are blooming and you've scrubbed, dusted and aired out your house. But what about your credit?
Spring is a time of renewal, so it can be a good time to take a look at the smudges dirtying up your credit report, and any cards — or rewards — that are collecting dust. Add these 10 tasks to your credit spring-cleaning checklist.
1. Pull your credit reports: “That would be the first step,” says Kathy Virgallito, regional director of partnerships at Apprisen, which offers financial services such as credit counseling and debt management.
Visit AnnualCreditReport.com to get a free credit report every year from each of the three major credit bureaus. You will have the option of purchasing your credit score, which is not included with the free reports, and Virgallito recommends you do that. Knowing your credit score will help you see what money changes you need to make, she says.
2. Examine your credit reports carefully: Print your credit reports, then sit down to go over them, Virgallito recommends.
“Get a highlighter and start at the beginning,” she says.
First, make sure your name, address and other personal information are correct.
“There might be people with similar names or Social Security numbers, and that can cause errors,” Virgallito says, noting that someone else's credit history could be on your report. Then, make sure you recognize all of the accounts and that your payment history is reported accurately.
3. Dispute any errors you find: If you find a legitimate error, you can file a dispute with the credit bureaus either online or via postal mail to try to get it corrected. All three credit bureaus have websites where you can file disputes, plus you only have to file a dispute once as the bureaus are required by law to notify each other of a dispute. Here are the credit bureaus:
“That's free to do — you don't have to pay to dispute,” Virgallito says.
When you dispute an item, provide supporting evidence if you have it — for example, a letter from a creditor showing an account is paid, or a cancelled check or bank statement showing an on-time payment. You should also try to resolve any issues with the creditor or financial institution that reported the incorrect information. Virgallito recommends keeping records of all your dispute-related correspondence, including dates, in one spot. If you don't get resolution, you may try filing a complaint with the Consumer Financial Protection Bureau as well.
4. Go over your accounts: If you're like many consumers, you might have multiple credit cards and not know the details of each account. The average client who gets credit counseling at Apprisen, for example, has seven to 10 cards and, in many cases, doesn't know basic information such as the interest rate on each account.
Look at recent statements for all of your cards. Check interest rates, fees and balances if you carry any, Virgallito recommends.
“If you have quite a few cards, you have to spend some time staying on top of them,” she says. Write down your balances on a sheet of paper, along with the interest rate and any annual fee for that card to get a good idea of which cards are costing you the most.
5. Check your credit utilization ratio: Add up the credit limits on your cards, then add up any balances you carry on your cards. The percentage of your available credit that you're using is you credit utilization ratio, and Virgallito says it's important for two reasons. One is that it factors heavily into your credit score: If you're using too much of your available credit, your score will dip. Second, a high utilization ratio can be a tip-off that you're getting into financial trouble.
“That should be a red flag for people,” Virgallito says. “If you see the utilization ratio is 60 percent or 70 percent, step back and look at ways to pay that down.”
6. Think before you close cards: If you do have too many cards, think before you just start closing accounts. In some cases, closing credit accounts could negatively impact your credit score. First, it reduces your amount of available credit, making your credit utilization ratio higher if you carry balances. Second, closing old accounts changes the length of your credit history.
“You have to be cautious about closing accounts,” Virgallito says.
On the other hand, if you have too much available credit — which sometimes makes lenders view you as risky — closing some accounts can actually help your score, she says. If you're not sure, try playing with the credit score simulator tool at MyFICO.com.
7. Keep track of where you money goes: Consumers should consider signing up for Mint.com or another budgeting tool to track their finances, says Kevin Bourke, a certified financial planner and author of the book “Make Your Money Last a Lifetime.” That makes it easier to monitor credit card information, debts and assets.
“It's cheap and it's easy,” he says.
When your credit card statements arrive, be sure to read them carefully even if you don't want to.
“What you don't know will hurt you,” Bourke says.
8. Prevent payment problems: When you look over your statements, do you see any late payments and late fees? If so, spring cleaning is the perfect time to make sure that doesn't happen again. Set up a reminder system that works for you — anything from an mobile app to writing bill due dates in your day timer — and make sure your bills get paid on time. And if you really need to rebuild your credit, consider getting a secured credit card and using it responsibly, Virgallito says.
9. Make sure your cards are still serving your needs: Maybe you got a credit card two years ago and you've stuck with it, but your needs have changed. If so, it might be time to revisit the cards you're using and even shop for better deals on interest rates or rewards, depending on what your needs are.
“Maybe you've started traveling a great deal when you weren't before — and now you want something that has travel rewards,” Virgallito says.
If you have a card designed for people with bad credit (such as a fee-heavy secured card), it might be time to move on to something better. If you've been using that card well, your credit score has probably gotten a lift. Ask your current issuer if it can bump you up to a regular credit card with no fees. If you're refused, see what other issuers have to offer for those with fair or good credit.
10. Organize your rewards: If you use rewards cards, make sure you understand how they work and go over the information on card benefits. Check to see if your rewards program has undergone any changes since you signed up. And, if you don't have a method for tracking your miles and points, try to get organized.
Rand Shoaf, founder of The Well Traveled Mile, recommends AwardWallet.com for keeping track of rewards and mileage accounts.
“It's a one-stop shop as far as mileage and hotel accounts,” he says. “It's very handy and useful.”
Whatever you do, don't let points sit unused, Virgallito says. Pay attention to expiration dates on the rewards.
“Don't let them go to waste — that's why you have the card,” she says.
Once you've made it through this list, you should be able to go out and enjoy the spring sunshine with no — or at least, fewer — financial worries clouding your day.