As most of you may know, your credit score is of vital importance for a variety of things – from applying for a mortgage, to financing a new car. And if you are someone who is looking to take out a small business loan, banks may reject your application if your credit does not meet their standards. Having a pristine credit history can open so many doors for you, while on the other hand, a less-than-perfect credit score will keep you from reaching your financial goals. But don’t let your past misfortunes keep you up at night, because there’s always something you can do to better your credit and get your financial life back on track. Here are some great tips that can help boost your credit score in no time.
Check Your Credit Score
The first thing you should do before beginning your “credit cleanse” is to find out where your credit score stands, and assess how you can make appropriate changes to improve it. A “fair” credit score is categorized as any score between 580 and 669, according to Experian. If you fall within this range, you may still qualify for certain loans, but you should always be working toward a higher score. Anything below a 580 is considered “very poor” and there is a good chance you would not be approved for credit. Many online resources, like Credit Karma, LendingTree, and NerdWallet all offer services that can provide you with your current credit score, as well as reports that show the short falls in your credit history. If you can isolate where you are struggling, or if you find any mistakes that could be hurting your score, it becomes much easier to improve your credit rating expeditiously.
Your next step should be to get your financial documents and current expenses organized. If you don’t already have one, start a budget that lists your net income each month, all of your current debts, monthly expenses and if necessary, list out your expenditures over the past several months to find out where exactly you can cut back. The number one reason for a low credit score is missed payments or failure to make payments on-time and consistently. If you can find a room in your monthly spending, you can start not only paying back your debts on-time, but paying back the principal as well. The longer you take to completely pay off any debt, the more interest it will accrue and the longer it will take for you to get out from under your credit score issues.
One Bill at a Time
Although having thousands of dollars in debt can be overwhelming at times, it’s important to take a deep breath and take on one financial hurdle at a time. List out all of your debts in order from smallest to largest. If you can work through your smaller payment obligations first, it will give you more money to contribute to larger debts later on. However, if you are someone who has accumulated excess credit card debt, that should be your first priority, regardless of size. In most cases, credit cards have the highest interest rates on overdue or missed payments. This will add tremendous amounts of additional debt to your bill that if not taken care of immediately can become too overwhelming to deal with without professional help. Debts such as student loans, car payments or any outstanding loans should also be of high priority due to accumulating interest. Pay more than the minimum when possible and be on time with all payments. Taking these actions will all positively benefit your credit score. It may not happen overnight, but within only a few months you will see improvement.
How you conduct your banking may also have an impact on your current debt situation and switching banks may help provide you benefits to get out of a financial divot. Many banks offer checking accounts to those who have inherited substantial debt or past financial downfalls. These second chance bank accounts could allow you to build a better financial history while teaching restraint when it comes to spending, as you can only spend the money you already have in your possession. Debit cards are a much smarter option that can help you avoid credit card debt entirely. Certain banks offer benefits as well, like no additional fees and mobile banking apps with every account. Do your research and find the right bank for you that can give you the independence you need to build wealth instead of accumulating debt.
Set Goals for Yourself
Lastly, it’s important that you set goals for yourself and your financial freedom. Both short-term and long-term goals are important to have when trying to boost your credit score and pay off debts. If you’re having trouble being on-time with your payments each month, make it a priority to consistently pay bills either by their due date or even beforehand. Paying bills early will encourage credit health, as payment history accounts for 35% of your credit score. You could also set a budgeting goal each month and challenge yourself to save as much money as possible. In the long-term, try to set a realistic date that you will have each of your debts paid in full. Even if this may be 10 or 15 years from now, it’s important to make a plan and stick to it. Financial freedom can be achieved, so start making strides for better credit and to eliminate your debts as soon as possible.