While bad credit may be a reflection of poor financial choices in your past, it doesn’t have to define your financial future. Whatever your reason for wanting to build good credit, be it to qualify for an affordable home loan or the best rewards credit cards, you can start improving your credit score by putting in place financially sound habits this new year.
Up your credit score by setting resolutions that promote fiscal health, security and prosperity. Here are some essentials to get you started…
1. Start a budget (and stick to it!)
Bad credit is the result of a poor borrowing history. If you don’t have a budget, you’re more likely to accumulate debt you can’t afford to pay back. That means higher risk of late and missed payments in addition to more serious blunders like default- all big black marks on the credit report.
Make a clear plan for your money this year to ensure you have more than enough to cover all of your bills each and every month. Apps like Check come in handy for making budgets and remembering to pay your bills on time.
2. Pay off your debts
Unpaid debts are a recipe for credit misery. However overwhelming the numbers, tackle them head on. Ignoring debt doesn’t make it go away.
Call your lenders to see if you can consolidate, negotiate and reduce your total amounts owed — then put a plan in place to make payments on time and in full.
If you need help, consider contacting a reputable debt relief service.
3. Identify bad spending habits
The reason people go into debt in the first place is because they spend more than they can afford to pay back (especially around the holidays). To avoid a debt hangover come January and the subsequent credit damage, live within your means and don’t let outside forces of peer pressure, social expectations or anything else deter you from staying on track.
Track your spending in relation to your income to ensure you’re remaining within those parameters. If, despite your best efforts, you continue to overspend, start using your previous months’ salary to pay for your present months’ expenses and make all purchases in cash so that you physically can’t exceed your limits.
4. Build your buffer
A well-funded savings account or emergency fund is a must for avoiding debt and bad credit vulnerability. If you forgo savings, you leave yourself exposed to high interest debt you may not be able to afford to pay back (once again, destroying your credit) should an emergency or other unforeseen circumstance arise.
Stay a step ahead by building your savings buffer this year. A good rule of thumb is to have at least six months-worth of cash in a secure place in the event of an accident or job loss.
5. Check your credit reports
You may be a financial golden child suffering from poor credit consequences simply because of your failure to check your credit reports. According to a 2013 Federal Trade Commission study, as many as one in four Americans have errors on their credit reports.
Minor mistakes can mean major costs when it comes time to figure financing and loan rates. Save your precious pennies by checking each of your reports at least once a year for errors. You’re legally entitled to do so through annualcreditreport.com.
If you spot a mistake, report it right away and follow up with the credit bureaus to ensure it’s been removed.
The New Year is all about exploring new horizons and taking on new goals — don’t let bad credit hold you back from any of it.
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