Money Management

If you want a better credit score in 2023, you need to read this. 

A good credit score is an extremely valuable asset.

When you have good credit, you can rent an apartment in a nice area without a huge security deposit or qualify for a mortgage to buy a home. You can also get a cell phone or sign up for utility services without putting a ton of money down, pay less for auto insurance, and otherwise borrow money at affordable rates. And this is just a small sampling of the perks that come with a good credit score.

Unfortunately, not everyone has a credit score that opens doors for them. If you aren’t satisfied with your score, there are some steps you can take to get better credit in 2023. Here are five of them.

1. Take a close look at your credit report

Taking a look at your credit report is a crucial first step toward improving your credit in the new year. By checking your report, you can identify what exactly is causing your score to be lower than it should be. That can help you make a plan of action.

For example, if high debt balances are the issue, then you’ll need to follow a different process for improving your credit than if the issue is incorrect information or late payments.

Be on the lookout for any negative information that you can get removed if it’s on your report in error, or that creditors might be willing to remove for you if you can work out an arrangement with them.

2. File a dispute to correct any errors

If you found inaccurate information on your credit report, you’ll need to dispute the details with each of the three major credit bureaus. With a few simple steps to removing inaccurate information, you can quickly and easily boost your score.

Don’t try to dispute accurate negative info, though, as the credit bureaus will investigate and if they find the negative details are accurate, they won’t be removed.

3. Ask for credit line increases

Your amount of credit used, versus credit available, is one of the most important factors that affects your score. If you can get creditors to increase your credit limits, this will instantly reduce your credit utilization ratio and improve your score. Credit card companies are usually willing to do this periodically for responsible borrowers, even without a credit check.

4. Make a plan to pay off debt

You can also reduce your credit utilization ratio by paying down debt. While this requires more effort than just getting a credit line increase, paying off high-interest loans is a good idea to improve your overall financial life anyway. Plus, many lenders look not just at your credit but also your outstanding debt when deciding if they should give you a loan — so paying off debt can help you qualify for cheaper future borrowing for this reason as well.

5. Decide if you should apply for any new cards or loans

If your credit score is lower than you’d prefer because you don’t have a long payment history or because you don’t have a varied mix of different kinds of loans, then opening up new cards or taking on new installment loans could help improve your score. That’s because you need to show you can be responsible with different kinds of debt.

Your own specific credit history will determine which of these five steps could help you the most, but they’re worth trying if your goal is to have better credit in 2023.

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I’m experimenting with a new way to manage my money and work toward my financial goals. 

As someone who writes about personal finance, I frequently find myself advising people to start following a budget. Doing so is a great way to track spending and work toward different savings goals.

In fact, most years, my husband and I sit down in late December or very early January to map out a household budget to follow for the next 12 months. Our budget will commonly account for expenses like our mortgage payments, transportation costs, utility bills, food-related expenses, and leisure, to name a few.

Following a budget worked really well for us in the past. But as our kids have gotten older, we’ve found that some of our monthly expenses can be harder to predict.

For example, we used to budget $150 a year for soccer for each of our kids because that was the cost to sign up for the recreational season. But this past year, my kids wanted extra coaching and were invited to play in some tournaments that cost extra. Those weren’t expenses we had budgeted for, but we also weren’t inclined to say no.

Another thing that’s almost impossible to budget for? Home repairs.

For years, we’ve had a line item in our budget to account for things like appliances breaking or issues arising with our heat or air conditioning. But still, we almost never manage to budget accordingly and wind up dipping into our savings account when our repairs costs come in higher than expected.

It’s for these reasons that my husband and I have decided to try something new in 2023 — not following a budget. But that doesn’t mean we’re planning to spend money recklessly with no regard to our goals.

A different system that may be a better one

For the past few years, I’ve followed a budget only to get annoyed when I’d inevitably go over in specific categories. In 2023, I want to try something different — not follow a budget, but arrange for a larger amount of our paychecks to land in our savings off the bat.

My husband and I tend to divide our savings between a regular bank account, CDs, a brokerage account, and our respective retirement savings accounts. And we normally have a line item in our budget to allow money to go into these accounts regularly.

Next year, instead of following a budget, we plan to increase our contributions to savings so we’re funding those accounts at a pace we’re happy with. And from there, we figure we’re free to spend the rest of our earnings without worry or guilt. It’s a system that might make it possible for us to stick to our goals without having to get hung up on little details, like whether we stuck to our $200 cable and streaming budget each month or went over by spending $205.

A system you may want to try

If you’ve failed at budgeting before, you may want to adopt a similar approach to mine for 2023. Set a savings goal and arrange for enough money to leave your checking account each month to meet it. And then spend the rest.

Doing so might help eliminate some of the stress budgeting can cause. And as long as you meet your savings goal, that’s really all that matters.

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Keep these points in mind if you’ll be continuing your home search. 

If you wanted to buy a home in 2022 but it didn’t work out, you’re no doubt in good company. It’s been a very challenging year for home buyers, and you may have decided at some point to put your house hunting on pause. Or, you may have lost out on enough bidding wars to decide to sit out the housing market until 2023.

But if you’re gearing up to try to purchase a home in the new year, it’s important to know what to expect. Here are some points to keep in mind.

1. Home prices are still high, but gains are slowing

Home prices are still mostly up on a national level. But home price gains are slowing.

What this means is that home prices aren’t continuing to rise from month to month, but rather, are starting to come down. Now this doesn’t mean we’re looking at pre-pandemic home prices. But depending on your specific housing market, it could mean that you won’t have to spend quite as much on a home — or take out quite as high a mortgage loan.

2. Inventory is still very tight

As of the end of October, there were an estimated 1.22 million housing units available for sale, according to the National Association of Realtors. Now that may seem like a decent amount of inventory. But actually, it isn’t. Rather, it’s only the equivalent of a 3.3-month supply of available homes. And it typically takes more like a 4- to 6-month supply to create an even housing market where sellers don’t have a clear upper hand.

Limited inventory is likely to persist in 2023, at least during the first few months of the year. So if you’re buying a home in a market with few listings, you might get stuck in a bidding war or wind up paying more than you’d like. You might also have a difficult time finding a home that has all the features you’re looking for.

3. Mortgage rates are high — and could stay that way for a while

Mortgage rates have risen sharply since the start of 2022. And there’s reason to think they’ll remain high in 2023 — at least during the first half of the year.

A big reason mortgage rates are up is due to recent interest rate hikes on the part of the Federal Reserve. Now the Fed recently pledged to slow down its rate hikes, so that could spell relief for mortgage borrowers at some point in 2023. But those looking to finance a home purchase are unlikely to score a mortgage at a discount any time soon.

Will 2023 be an easier year to buy a home than 2022 was? It’s hard to say. A lot of that will depend on whether inventory picks up, whether mortgage rates go down, and whether a recession strikes (an economic downturn could actually push buyers out of the market, making it easier for remaining buyers to move forward with a home purchase). But if you’re hoping to buy a home in the new year, be sure to keep these factors in mind so you have realistic expectations.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Save your debit card for getting cash at the ATM. On your regular purchases, a credit card is a better choice. 

Debit cards have been a popular way to pay for a long time. According to recent data, debit cards are now more popular than credit cards, with 56.2% of consumers picking debit cards as their primary payment method.

People often go with debit cards because they don’t want to buy anything on credit, or simply out of habit. Even though this might seem like a minor decision, there are actually several big risks to paying with a debit card. If you’re one of the many consumers who make purchases this way, here’s why credit cards are the safer choice.

1. Debit cards have limited fraud protection

Both debit and credit cards have legal protections limiting your liability for fraudulent transactions. However, protections are much different depending on the type of card. If your debit card is lost or stolen, the maximum amount you’re liable for depends on how soon you report the loss:

If you report it before any unauthorized transactions occur: You have zero liability.If you report it within two business days: You’re liable for up to $50 in fraudulent transactions.If you report it within 60 calendar days after your statement is sent to you: You’re liable for up to $500 in fraudulent transactions.If you report it after that time frame: You have no legal protection.

Credit cards have much more robust protections. The maximum amount you’re liable for is $50. If you report the loss before any unauthorized transactions occur, you have zero liability. Most major credit card companies also take it a step further and offer zero fraud liability to all cardholders, regardless of whether they report the loss before or after fraudulent transactions occur.

2. Holds or fraudulent charges can tie up your money

Your debit card is directly linked to the money in your bank account, and there are situations where that can cause issues. If a merchant puts a hold on your account, that will tie up your money. One of the most common ways this can occur is when paying for gas at the pump. The gas station can put a hold on your account for up to $175.

The same issue could occur if there are any fraudulent charges on your debit card. Although you can dispute them, your money will most likely be tied up while the bank investigates. That could be a serious problem if it leaves you short on cash to pay your bills.

Credit cards don’t have this risk, because they’re not directly linked to your bank account. Holds will temporarily reduce your available credit, but that will only affect how much you can spend with your credit card. And if you report a fraudulent transaction, the card issuer will issue a temporary credit to your account while it investigates.

3. You could get charged overdraft fees if you’re not careful

Overdraft fees are a common consumer frustration. Although some banks have done away with them or lowered their fee amounts, there are still plenty of banks that will charge you a hefty extra fee for having a negative balance. In fact, the average American pays over $250 per year in overdraft fees.

These fees are avoidable, but they can happen if you lose track of your balance. Or, if a merchant puts a hold on your account without you realizing, that could lead to an overdraft. For example, imagine you fill up at a gas station and pay for $50 of gas at the pump with your debit card. As mentioned earlier, the merchant could put a hold of $175 on your account. That would temporarily leave you with an available balance $125 lower than you expect.

You don’t need to worry about overdraft fees with a credit card. Your card will have a credit limit, but if a transaction would put your balance over your credit limit, it will be declined.

4. It doesn’t build your credit

When you use a credit card and pay the bill on time, this activity goes on your credit file. Over time, you’ll build credit this way. A higher credit score can help you qualify for the best credit cards, lower interest rates on loans, and get you approved when renting an apartment or applying for a mortgage.

Debit card activity doesn’t get reported on your credit file. If you only pay by debit card, then you’re missing out on all the positive activity that would improve your credit score if you change your payment method.

5. Most debit cards don’t earn purchase rewards

Many credit cards earn purchase rewards in the form of cash back or travel points. With the top rewards credit cards, you can earn quite a bit back on your everyday expenses. For example, there are cards that earn 5% to 6% back in their bonus categories, such as groceries or streaming services. Some consumers earn $500 to $1,000 or more per year in credit card rewards.

To be fair, there are rewards checking accounts that earn rewards on debit card purchases. However, they tend to offer much less than rewards credit cards.

When to use a debit card

For most transactions, it makes sense to use a credit card and not a debit card. You’ll get more fraud protection and won’t be using a payment method directly linked to your bank account. You’ll also be able to build your credit and earn rewards in the process. But there are a small number of situations where you should use a debit card:

Getting money at an ATMPaying for purchases that have an additional fee for credit card paymentsMaking transactions that would be considered a credit card cash advance, such as wiring money

Those are all cases where using a credit card would cost you extra. Everywhere else, a credit card is the way to go.

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This tax season will be nothing like the last. 

The IRS is doing its best to get the word out: “Refunds may be smaller in 2023. Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no Economic Impact Payments for 2022. In addition, taxpayers who don’t itemize and take the standard deduction, won’t be able to deduct their charitable contributions.”

What’s going on?

In an effort to help Americans weather the COVID-19 pandemic, the federal government — with the help of the IRS — provided a collection of credits. Now that those credits have expired, you’re likely to feel the impact at tax time.

By the way, the IRS has also issued a warning about when you can expect this year’s refund. If you’re accustomed to receiving a refund check or direct deposit into your checking account by a particular date, you’ll want to make an alternative plan this year.

For example, if you normally have a check by March 1 and plan to use that money to make a major purchase or go on vacation, there’s a chance the funds won’t arrive as early as usual. To strengthen security reviews and protect against identity theft, the IRS and its tax industry partners may need additional time to process your return.

To protect yourself financially, have a backup plan ready in case it takes longer to receive your refund than expected.

While you’re planning for a potentially-late refund, you may also want to plan for a smaller refund than you received last year. Here’s why.

The expanded Child Tax Credit has expired

Depending on the age of your child, you watched the annual Child Tax Credit boosted from $2,000 to either $3,000 or $3,600. If you opted to accept the first half of that credit between July and December 2021, you received the back half ($1,500 or $1,800) after filing your 2021 tax return.

Republican lawmakers voted against extending the expanded Child Tax Credit and the program expired in December 2021. As you estimate the amount of your refund this year, remember that, like Cinderella’s pumpkin at midnight, the Child Tax Credit is back to its pre-pandemic level of $2,000 per child.

Most people have already received economic impact payments

Eligible recipients who never received an economic impact payment (stimulus check) had the opportunity to let the IRS know when they filled out their 2020 or 2021 tax return. Once the IRS determined their eligibility, they provided the funds through a refund check.

Unless you’re one of the few who have yet to receive any of the three stimulus checks you are due, there’s no chance there will be an extra economic impact payment on this year’s refund check.

Penalties are back

People and businesses who filed certain 2019 or 2020 tax returns late caught a break from the IRS. To help taxpayers impacted by COVID-19, most of those who filed before Sept. 30, 2022 were spared penalty payments.

You can’t count on that this year. If you owe money and pay your 2022 tax returns late, you’ll be hit with both penalties and the interest charged on penalties until you pay the amount due.

There’s no doubt that pandemic-related tax credits had to end at some point. The challenge for taxpayers this year is to remember which credits have been reduced or eliminated and plan accordingly.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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They’re better than any toy or video game you’ll put under your tree. 

It’s common for parents to wind up frenzied during the holiday season, and for good reason. We all want to make the holidays as magical for our children as possible. That means creating a festive atmosphere, buying the right holiday foods, and purchasing the best gifts.

The latter can be challenging, though. For one thing, supply chain issues still persist to some degree, so you may have struggled to check all of those must-have items off your list this year. And also, inflation has made everything so gosh-darn expensive. So even if you managed to find that gaming system your son wanted or those sneakers your daughter wanted, the cost might’ve forced you to say no.

But rather than get worked up over the gifts you did or didn’t give your kids this year, a good place to focus your energy is personal finance — specifically, personal finance lessons you can teach your kids. These four in particular are among the greatest gifts you can actually give them.

1. Always have savings to fall back on

Life has a way of surprising us — and not always in a positive manner. That’s why it’s so important to have an emergency fund. Teach your children to always keep money in a savings account for a rainy day. If they receive cash gifts during the holidays, encourage them to bank that money for a time in the future when they might really need it.

2. Always pay credit cards off in full

Your kids may be used to seeing you swipe a credit card at the supermarket or pharmacy. But make sure they understand that a credit card isn’t a free pass to spend as you please. Rather, it’s a running tab of the money you owe. And you should make a point to stress to your children that paying off credit cards in full every month is really the best route to take.

3. Never take on a loan you’re not sure you can afford

It’s common for people to take out loans to finance things like home purchases, vehicles, and property renovations. But it’s never a good idea to take out a loan whose payments are a stretch. Teach your children about the importance of keeping debt to a manageable level so they don’t make the mistake of getting in over their heads as adults.

4. Don’t underestimate the importance of budgeting

Following a budget is one of the best ways to track spending and make the most of a limited income. While your kids may not need to budget for expenses now, it wouldn’t hurt to walk them through your household budget (either with real or fake numbers, depending on their ages and your comfort zone) so they can see what it’s like to set limits for different spending categories.

It’s natural to want to get your kids holiday gifts they’ll be thrilled with. But remember, teaching them to be financially independent and savvy is an even more important gift, so it’s one thing you shouldn’t skimp on if your children are old enough to understand the aforementioned concepts.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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