June marks the year’s halfway point, and it’s time to measure your success (or lack thereof) in sticking to the financial resolutions you made back on Jan. 1. Paying off credit card debt was one of the most popular financial resolutions for 2013, according to the Fidelity 2014 New Year Financial Resolutions Study, and of those who named getting out of credit debt as their goal for the new year, 29 percent reported falling short of the same goal in prior years.
Take heart, gentle reader. If your resolution was to get out of debt and rebuild your credit—but you’ve made little progress so far—we have some ways to help you get back on track:
Know How Debt Affects Your Credit Rating
Your debt enters into five major factors that bureaus and lenders use to determine your credit score, FICO.com reports. The breakdown:
- The biggest factor is how often you repay your debt on time, counting for 35 percent of your total score.
- How much of your available credit you’ve already utilized contributes 30 percent.
- The remaining 35 percent is divided between how long you’ve had credit, how often you’ve applied for credit recently and whether you have experience repaying a mix of different types of noncredit card debts, such as car loans.
You can increase your credit rating by improving in any of these areas.
Pay on Time
Since repaying debt on time weighs so heavily on your total score, paying bills promptly each month is one of the keys to improving your credit. Most late payment problems can be avoided through automated tools such as electronic notifications and automatic deposits.
Lower Your Balance
Because credit utilization has the next biggest impact on your rating, another important part is lowering your balance. FICO experts recommend staying within 10 to 20 percent of your credit limit to boost your score. Prioritize your budgeting so each month you exceed your minimums and reduce your balance.
Begin thinking of ways you can pay your outstanding debt:
- Get a second job for a short period of time and put all those earnings on your debt balance. Think creatively—perhaps you could tutor, walk dogs, babysit ormake money on Craigslist.
- Look for assets (collectibles, unused exercise equipment) you can sell to come up with extra money. Consider launching an eBay business.
- If you receive regular payments from an annuity or structured settlement, contact a company that can convert it to cash. J.G. Wentworth buys future annuity payments in return for a lump sum of cash now that you can use to help pay off your debt.
Build Good Credit History
Your credit score represents your track record for paying back debt promptly, so you can improve it by borrowing money and repaying on time to demonstrate reliability. To establish good credit history, start with a low-limit credit card or a secured card, which is backed by a deposit that sets a ceiling on how much you can borrow.
You can also apply for a department store or gas station card. Interest rates for such cards run high, so look for the lowest rates and best payment terms you can find. Then use the cards sparingly, and be sure to pay back your monthly obligations immediately.
Another strategy that’s useful for both building credit and rebuilding damaged credit: Borrow a loan against collateral you have deposited into a certificate of deposit or savings account. Consumer attorney Margaret Reiter wrote on nolo.comthat when using this method, you should space your repayments out over 12 months, so they impact your credit file over that period.
Erin Nelson Erin works in the finance department for a large New York ad agency. She has two dogs, Mac and Damien, that run with her every day in Central Park.
