Your credit score is one of the primary factors that determine your ability to borrow. The rating is to an extent under your control since it is determined by how well you’ve been able to meet your financial obligations in the past. If you only take on financial obligations you can fulfill and consistently fulfill them on time, you will have a good credit score. If you are always late on your loan repayments and bills, your credit score will suffer.
The good news is that even with a terrible credit score, there are concrete actions you can take starting today to drastically improve it. Some of the things you can do to improve your credit score only require self-discipline on your part and will not affect your current lifestyle at all. Here are some tips to help you improve your credit score without sacrificing your current lifestyle:
Know Your Starting Point
The first thing you should do as you start to repair your credit is to know exactly where you stand. Even if you have an idea of what your current financial position is, you should get the most current credit report available. Most lenders including credit card companies keep track of their customers’ credit scores. Credit card providers include FICO scores on monthly credit card statements.
If you want to get your current credit report, you shouldn’t use the online services that aggregate credit scores from the main credit reporting agencies such as Equifax, TransUnion, and Experian. Most of the reports they give are annual reports.
From your current report, you will see the main points of data that have been used to calculate your credit score. Check if the data is accurate, current, and complete. There could be some errors such as incorrectly attributed late payments. If there are any errors, file a dispute with the credit bureau.
Get Current on Overdue Bills
If there are any overdue bills, you should get current as soon as possible. You shouldn’t let bills sit unpaid for long. While paying your bills on time won’t directly improve your credit score, almost all late payments that go to the collection will harm your credit score. If there are monthly services you are subscribed to but no longer need, you can contact the service provider to cancel the subscription. Frugal living can help you achieve better finances.
Schedule All Regular Payments
To avoid being in a situation where you have to deal with a late payment, automate all fixed monthly expenses such as rent and loan repayments so you don’t have to worry about them again. You can have your bank automate loan repayments and the installments will be automatically deducted from your account every month. While at it, you can also automate payments to your savings and investments accounts.
Break the Cycle of Credit Card Debt Dependency
Credit card debt usually has higher interests rates than other kinds of debt. With regular income, you can always pay off the balance without any problem. Nonetheless, some people end up in a cycle where they are always racking up credit card debt and struggling to pay them off on time. When they do pay the balance off, they have to take on more credit card debt to fund their lifestyle and this leads to a harmful cycle.
You can break the cycle by sacrificing for a month and using the money saved from living frugally during that month to put your cash flow in order. You should be able to continue with your normal lifestyle after that month but with a better handle on your cash flow and credit card debt.
Alternatively, you can just make more money. That’s easier said than done, though. It will take some effort to get a second income stream going but it is totally doable. If you are gainfully employed right now, you have skills that people are willing to pay for. You can use those skills to earn money on the side. With several freelancing sites now available where workers can connect with clients directly, you can be up and running in a day. If you work on your gigs for just one hour a day after your regular job and earn $20 an hour, you will end up with an extra $420 every month.
Use Credit Cards to Build up Your Credit Score
After breaking your dependency on credit cards and getting your cash flow to a point where you are sure you can pay off your credit card balance every month without fail, you can take advantage of credit cards to start rebuilding your credit score.
A regular credit card can do but you can also get credit-building cards. Such cards can have interest rates as high as 30% so it is imperative that you pay off your balances every month. Using a credit card responsibly gives you a history of consistent timely debt repayments and this will definitely help you improve your credit score. When starting out, the foolproof way to ensure that you don’t spend money you don’t have is to use a secured card. Security is used the same way it’s used when you take title loans near you. With secured cards, you have to make a cash deposit equal to the credit limit.
