One of the best ways to get an overview of your financial standing is to take a look at your credit score. It gives you an idea how you are performing with your financial obligations and if you are meeting your payments on time. You can think of it as your financial barometer so you know how you have taken care of your finances.
You might be wondering why your credit score is an ever changing number as you grow up and mature. This is because you cannot hardly stick to the same financial routine day to day, week to week, month to month and year to year. There will be times that you will overspend and there will be times that you will inquire about a loan and the lender or creditor will do a hard pull on your credit score.
It is also possible that you get into a financial problem and you are unable to meet your financial obligations for a few months. You send in late payments that are already listed as delinquent and sets off a motion where you need to pay charges and fees in the next bill. It is also possible that you are easily swayed by sale promotions that you quickly whip out your card to buy things you really do not need.
There are a lot of ways to damage your credit score and you might already be guilty of some of these mistakes. It is not everyday that you get to improve your credit score like one girl that was reported by CBSnews.com where she went up 100 points in 3 months. It is not easy but as proven by this girl and a lot more others, it is not impossible.
Building up credit credibility
Your credit score is a fragile benchmark of your financial attitude and one that the financial world looks at to assess your level of maturity with payments. When you go in and apply for a mortgage loan or an auto loan, the bank and the dealerships would take a look at your score. This lets them know the chances of whether or not you will be able to repay your loan back.
Your financial score also helps these lenders set the interest rate to be able to compensate for the level of financial risk they getting into by loaning you a specific amount of money. The ones that has the highest scores gain from this practice as they are assessed little to no interest on the loan. The ones that have low scores are given high rates to offset for the risk lenders are taking.
So how do you get your credit score up if you have not been putting focus on it or if you are coming from a terrible financial disaster? Here are a few things you might want to consider when you are trying to reach this goal.
- Start on building it asap. There is no day like today and you need to take it to heart especially if you are trying to build up your financial score. This does not undermine the value of properly planning and laying out next steps but you need to act on them as soon as possible. No use having plans when you will wait for a year to act on them. Do them and make adjustments as you go along to help you get started right now.
- Pay your bills early or on time. It is hard when you find yourself dealing with debt payments in your household budget but the only way out is to pay them back and refrain from getting senseless loans for things you can do away with. But with the ones you already have, you need to pay them on time to help your case as you bring your score up. This is one of the biggest things you can focus on to help set your finances in order and increase your score. One way to go about it is to make advance payments on your loans and debts to make sure that what you are sending now is already payment for the next month taking away the possibility of sending in your payments after the due date and falling delinquent on the loan.
- Cut down your debt. This should already be a given but in case you were sleeping when this was taught by your parents or teachers, you need to lower down your debts. More than the obvious benefit of having more of your pay at the end of month, this does wonders for your credit score. The idea is that the lower your debts are, the better your credit utilization os. This lets lenders know that you are able to make payments on a loan.
- Monitor your credit report. The FTC.gov website shares that each of the credit reporting companies that operate nationwide must provide you with a copy of your credit report once every 12 months. This is all in the law under the The Fair Credit Reporting Act (FCRA) and one that you can use to help monitor your ups and downs. You need to see the problem in order to make adjustments or solutions. If you have Equifax, Experian, and TransUnion then you can basically monitor your report year round by getting a copy every four months from one of the three.
- Know it will take time. There is no magic formula in improving your credit score just like an SEO trick that will get you to the top of search engine results. It takes time to get your score up and there is no better weapon than patience coupled with the right financial attitude.
Getting your payments in order
It is tough to manage your household budget especially with all the items in your expense list. Nerdwallet.com lists down some of the most common expenses in a budget starting with mortgage loan, student loans and credit card debt. Apart from the amounts, you might be having a hard time getting all your payments in line. Here are a few tips you can use.
- Include everything in your budget. Never miss out an item in your budget especially the expense side. You might end up defaulting on a specific loan or debt just because you were not able to list it down and make the monthly payments. When you are just starting to build up your budget, spend time making sure that you included all that needs to be paid up to prevent missing a lender.
- Look at consolidating your loans. Debt consolidation is one of the best decisions you can ever make when you are trying to get a handle on your debt payments. It helps you combine most, if not all your debt and loan payables under one account. This means one monthly payment, one amount, one interest rate and one pay-off date. This makes payment a little easier because you only have to remember one set of details versus multiple ones every month.
- Know what to prioritize. Know what payments you need to make first in order for you to make the most of your time and money. If you are making extra payments on a house with a low interest rate rather than putting money on your retirement fund and earn compound interest, then you need to make better decisions with your financial priorities. You might think that paying the house off early will let you put more into your retirement fund but you already lose the chance to earn off compound interest from the years you did not put money in your account.
It is important to improve and bring up your credit score because you get to reap benefits along the way. You might get low interest rates on future loan items or even pre-approval on some. It tells the financial industry that you can be trusted and that you take your finances and payments seriously.