One of the biggest challenges that society has is paying down debt and saving money. With so many payments like college, cars, house, credit cards its can be really challenging to save. It can be even harder for you if you have poor spending habits and bad credit. Here are 6 ways that you can get on the path to successfully saving and building better credit.
Before we get into ways you can improve your credit score, first we you need to know what your factors into your credit score. The Fair Issacs Corporation created the FICO score that lenders used to determine your credit score. There are 5 key factors that determine your FICO credit score they are: Credit Mix (10%), Length of credit (15%), New credit (10%), Amounts Owed (30%), and Payment History (35%). These are the key things that will determine how fast you can build your credit.
1. Make Payments On Time
Making payments on time or early can increase your credit score. With the average interest rates on credit cards around 16%. Making payments before they are late is huge, that is why it accounts for 35% of your credit score. Credit scores typically update once a month and making payments on time can boost your credit score each month.
2. Automate Payments
Automate your payments is a great way for debtors to make regular payments on time. This a great way to improve your payment history and your credit mix. If your credit mix is made up of college debt or car payments, etc. This is a great way to make sure that your payments are made on time because it shows you are paying on all forms of debt that is owed.
3. Pay off Small Debt First
Focusing on the lowest credit cards or loans is important because it can help you pay off the small debt first. By making larger payments on smaller loans you can pay down these faster. As you continue this process slowly work up to the larger forms of debt.
4. Debt Consolidation
If you have several forms of outstanding debt, getting a debt consolidation loan might be for you. The way to get a debt consolidation loan is through a bank or credit union. What a debt consolidation loan does is takes all of your outstanding debt and combines it into one big loan. By combining the multiple forms of debt into a debt consolidation loan allows you to have a lower interest rate and a single monthly payment. This can be super useful if you have multiple credit cards or student loans that you need to pay off.
5. Secured CD Loan
One way for you to establish credit if you don’t have any credit or have poor credit is getting a secured CD loan. This is a way to build your credit score by borrowing from yourself. The way a secured CD loan works goes as followed. Open a Certificate of Deposit or CD at your bank or credit union and fund it with a minimum of $1000. Then you are able to borrow from the CD. This works just like a credit card, because you are able to pay back the balance and then use the funds again. The reason this is good if you don’t have any credit or bad credit is because you are borrowing from yourself. By making regular repayments you can establish credit or increase your credit score.
6. Create A Budget
Creating a budget is a great way for you to organize your spending habits and focus on what is necessary. There are several budgeting strategies that you can use to help save, make payments, and have room for paying off debt. A great strategy to use is the 50/30/20 rule. 50% of your money on needs, 30% on wants, and 20% on savings and paying off debt. This strategy is a great way to get on track and section off what is important. If you have direct deposit from your job this strategy can be easily implemented. You can delegate how much will go into each bucked when you get paid, that way it is automated for you.
The Reality
The takeaway to building credit is consistency. By creating a budget and making consistent payments on your credit cards or other forms outstanding debt, you can increase your credit score each month.
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