Your credit score is an amalgamation of the information that has accumulated on credit your reports (Experian, Equifax, TransUnion) during your life. This score can negatively or positively impact numerous aspects of your life, such as which loan terms you are offered from lenders and where you can live. It can even affect whether or not you are offered a job from a prospective employer.
The good news is that even if your credit score is poor, you are not permanently stuck with it. You have the ability to change your personal finance habits and increase that number by practicing these personal finance habits:
Obtain Your Credit Reports At Least AnnuallyYou are permitted to obtain a free credit report from each of the three credit reporting bureaus once a year. If you can request them every six months or quarterly, that is even better. Keep an eye out for red flags, such as signs of identity theft. Then, start looking for old debts that you can improve by paying off. Pay off the smaller debts first and attempt to work out payment plans or ask creditors on larger debts if they will settle for half of the amount.
Avoid Overextending Your CreditCredit is a two-edged sword. You have to create revolving credit in order to attain a credit score, and, at the same time, you have to make sure you are not overextending your finances. In order for creditors to take you seriously, you should look at your available credit and only spend 30 percent of that. If you look like you are spending more than you can afford, lenders will be leery of extending more credit to you. Beware of having too many lines of credit, because this might seem risky to lenders, as well.
Utilize Automatic PaymentsThe majority of us have several bills that we have to pay every month. That said, you should be paying all of your monthly bills on time, including your car loan, automobile insurance, mortgage or rent, student loan, credit card, and utilities. This alone should increase your credit score. Alternatively, forgetting to pay these bills will damage your credit score. Most companies offer consumers to enroll in automatic bill pay. If automatic payments can be aligned with your paychecks and you can be sure that the money will be in your account when the bill comes due, then you will never have to worry about forgetting to pay a bill again.
Save Money For EmergenciesFinancial emergencies typically do not come with warnings. Job loss, car repairs, a death in the family, medical bills, and other unexpected emergencies can cost hundreds or thousands of dollars. If you set an emergency fund away, it can help you pay these surprise bills. If you are expecting a refund from the IRS, consider setting that aside in an interest bearing savings account. This will do two things - 1) accrue interest while it sits and 2) be there when anything unexpected comes up. Think about the economic devastation the Coronavirus has created. If everyone had six months of expenses set aside, the virus would not cause as much devastation as it has.
Stick to a Budget and Know Your ExpensesMost people are not entirely aware of how they spend their money. By creating a detailed budget that includes all income and expenses, down to the dollar, you will be acutely aware of your finances. A budget can also help you determine ways to reduce any of your current expenses and find ways to save money. Money that you save by using your budget tracking can be used to pay old debts, which will only improve your current credit scores. Remember: Any unexpected bills can throw off your entire budget, so be sure to put money in a savings account before you start worrying about paying off old debts.
Once you start practicing new habits with your personal finances, it is crucial to continue those habits responsibly, no matter what happens. Your credit score might fall a bit for one reason or another, but you need to remain positive and keep your mind on the end goal, which is an improved credit score.
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