People come up with all kinds of excuses not to work on their finances, one of the most popular being lack of time. Yes, it takes time to do the things necessary to be successful with one’s personal finances, but is it really such a resource consuming activity? I wanted to prove, or debunk the notion that personal finances takes a lot of time and energy.
The first step is to list the activities needed to properly deal with your finances:
List Expenses and Income For A Full Month
You definitely have to do this before you can do much else with your finances, but it should be redone periodically as both expenses and income can fluctuate over time. My recommendation is to record the who, when, and how much of each monthly expense and stream of income. If it’s not the same each month (like utilities), use an average, or possibly even a worst case scenario.
Pick a Budget Cycle Length
Once you have laid out where all your expenses go out, and your income comes in, you should decide on a length for your budget cycle. Common lengths are a week, a pay period or a month. It may take some trial and error to figure out what length works best for you.
Make A Spending Plan
For each budget period, subtract the sum of your expenses and subtract them from the total of your income. This is the amount of funds available to your for your living expenses (such as gas and food) and discretionary funds. Make a plan as to what you’re going to do with your money, ensuring you stay within the funds available to you.
As you spend your money, record it somewhere. You could use a piece of paper, your phone, or a spreadsheet. You may eventually want to categorize your purchases, but for starters, just record every purchase so you have a full record of where your money went.
Before starting a new budget cycle, review the previous one. If you didn’t stick to your spending plan, determine why. Make any adjustments needed, then do it all again.
This may sound complicated, but it’s only the base foundation of building a personal finance machine to manage your money. So how much time does this all take? In the coming weeks, I’m going to be tracking how much time I spend performing these activities and report back to you, EOD Nation.
How long do you spend on your personal finances per week, or per month?
If you struggle with staying on top of your finances and managing your debts, you are not alone. Whether you need to dig yourself out of extreme debt or you simply want to become more financially responsible, you should consider implementing these seven tips to help you stay on top of your finances.
Automate Your Savings
Saving money is one of the most difficult challenges people face. When that direct deposit reaches your checking account, it can be tempting to spend more than you should.
For this reason, you should set up automatic monthly transfers to your savings account. Consider how a percentage of your paycheck is automatically deducted for taxes. You don’t miss this money because you never saw or touched it. Automating your savings has the same effect—you will be far less tempted to spend money that never shows up in your checking account.
Some financial apps, like Chime, make this even easier by allowing you to automatically transfer a percentage of each deposit directly to your savings account.
Create an Emergency Fund
Life can be full of surprises—some worse than others. If your home is damaged by something not covered by your insurance, you get into a car accident, you have an unexpected medical emergency or any number of other incidents, you could end up in serious financial trouble.
As a result, it’s never a bad idea to set up an emergency fund to help cover unexpected expenses. A good rule of thumb is to try to save up at least three months’ worth of living expenses. Once this money has been set aside, be sure not to touch it for anything other than an emergency, no matter how tempting it might be.
Stick to a Realistic Budget
The most important aspect of developing healthy financial habits is to create and stick to a realistic budget.
You should be sure to:
- Calculate your income
- Quantify your necessary expenses
- Make a plan for your leftover money
- Cut out unnecessary spending
Consider using apps like Mint or PocketGuard to help create a reasonable budget.
Cut Out Unnecessary Expenses
Nearly everyone can trim their monthly expenses by identifying and cutting out unnecessary expenses. Especially if you are using credit cards or personal loan companies, like Affirm, to pay for things you can’t afford, you should take a look at those expenses and cut them out. This could include a variety of spending categories, such as:
- Streaming services that you do not use regularly (i.e., Netflix, Hulu, HBO, etc.)
- Eating out
- Overspending on groceries and clothes
- Gym memberships
These expenses, among others, can add up to well over $100 per month that would be better off being put toward your debts.
Invest in a Retirement Fund
Investing in a retirement fund is one of the best things you can do while you’re still working. This is another habit that many young professionals avoid, as they would rather hang onto their money. However, you will surely be glad you decided to invest in yourself once you grow older.
There are several retirement plans to choose from, so be sure to do your research and find which one best suits your needs. Additionally, you should talk to your employer about retirement options, as many companies offer 401(k) matching.
Pay Off Credit Cards Every Month
Credit cards should be used with the intention of paying off the balance before interest accrues. However, many Americans will leave a balance on their credit cards for several months to several years. What makes this worse is that credit card companies typically charge very high interest rates.
Credit cards do not need to be avoided altogether, though, as many of them offer incredible benefits such as cash rewards and airline miles. However, one of the most basic principles of financial responsibility is to pay off your credit card balance in full every month.
Make a Plan to Pay Off Your Debt
A good rule is to treat your credit cards the same way as a debit card. Only spend money that is currently available to you unless it is an absolute emergency.
Once you have established good financial habits to help you avoid accumulating additional debt, you should create a plan to pay off your existing debts.
One common method is the snowball method. The snowball method suggests that you should pay off your smallest debts first before moving on to larger ones. This tends to motivate you to continue paying off your debts as you feel satisfaction from getting rid of your smaller balances.
Another option is to target your high-interest debts. This can help you save the most money in the long-run and is ideal for individuals who don’t need the additional motivation provided by the snowball method. Others use a debt consolidation loan to lower their interest rate and pay less on the debt over time.
Whichever method you choose, be sure that you can stick to it for the longterm.
Managing your finances can be quite difficult and stressful. These seven financial literacy tips are great options to help you trim your debts and stay on top of your finances.
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5 Ways to Effectively Manage Your Finances
- December 15, 2017
- by Lidiya Kesarovska
People often find it very difficult to stay on top of their finances. But managing your funds wisely and efficiently means not just saving money, but it also helps you keep resources, effort and even time.
You find that hard to believe? If you get resolved to that idea, then you just might be right. But wait a minute. Try to see things from a broader perspective and think about every aspect of your life.
How much money do you earn? How much do you spend? Do you effectively use your resources at your disposal? Do you have things lying around the house?
These are just some of the few questions that can help you reconsider the path that you need to take to stay financially healthy. If you are an employee and earn your income based on a regular salary, then it would be wise to take advantage of your company’s employee financial wellness programs.
Such programs are designed to help you stay on top of your finances by providing you with the best advice to stay financially healthy.
1. Plan ahead.
This is not about New Year’s resolutions or simple start-up light bulb moments. Seriously, planning is the best way to manage your finances. But while not everyone has the patience of foresight, it pays to know how you distribute your resources.
Start by making a checklist of things you do on a weekly or monthly basis. Allot a specified period for each general activity and what you plan to do in your spare time. Take note that many of these activities may entail some spending like planning a vacation, eating out or pampering yourself.
It may seem a bit daunting at first, but you will soon find it easy to do and help you keep track of where your money goes.
2. Create a budget.
Having a budget allows you keep tabs on your money. This is a more tedious process of breaking down your resources versus costs.
When you do your planning activities, make sure that you allocate a particular budget for it.
3. Spend smart.
Always be practical about spending. Do not fall prey to elaborate and attractive advertising. Take advantage of discount sales or price-off offers. These extravaganzas can help you save money of around 10% to as much as 50%- even higher.
Be prudent with your spending. If you need to do your groceries, make sure that you have a list of all the things you need. Without it, you can end up buying stuff you don’t need or food that will just stay in the fridge that gets spoiled and thrown out.
4. Pay off your loans.
This may be the hardest one yet, but remember that the more you ignore it, the more it will grow on you. It can damage your credit standing or worse; you could end up in debtor’s prison.
Reach out to the loan facility and try to offer an installment scheme that you feel you may be able to manage. It may cause you to give up on some of your other recreational or “feel good” spending. It pays a lot to free yourself from the stress and burden of unpaid loans.
5. Do not spend what you don’t have.
Always be mindful of your spending. Make it a rule to think twice about purchasing things on credit.
Due diligence on spending is always critical and crucial to maintaining good financial health. Use credit only as an alternative resource for your needs and do not make it a primary source of your regular spending activities.
Consider that money you do not have available is money that you need to find. If it isn’t included in your planning and budget, lay it down and consider it in the future. Do not take it out on a whim.
These tips may seem a bit difficult at first, but once you start working on it, you will eventually develop a habit of doing it regularly until it becomes second nature to you.
Always remember that to become financially healthy, you need to make the right choices in spending and saving money. You need to start somewhere, so start on doing these steps to tread the path to financial wellness.
About The Author
This article was written by Arpita Arya.
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Hey, I’m Lidiya
Thanks for stopping by. I’m Lidiya, a blogger, course creator and founder of Let’s Reach Success.
I help high vibe women create an abundant, value-driven business so they can live a fearless life and provide epic value.
No matter what your current financial situation is, implementing effective management techniques can improve it. Whether you’re almost out of debt or still figuring out how much you owe, taking control of your money is a sure-fire way to take control of the situation and make positive changes. With this in mind, take a look at these five ways to improve your financial management:
1. Stay Up to Date
When debt becomes unmanageable, it’s easy to metaphorically close your eyes to it and ignore the bills as they rack up. You may even start avoiding incoming phone calls or throwing your post away in an attempt to try and ignore mounting debt problems. Of course, this only makes things worse in the long run. By staying up to date with your accounts and remaining in close contact with your creditors, you can address the situation as quickly as possible and prevent things from getting worse.
2. Avoid Transaction Fees
Some expenses are impossible to avoid, but transaction fees aren’t one of them. If you’re using ATMs that charge you for making a withdrawal or you’re paying costly fees to make an overseas bank transfer, for example, there may be better options available. You can send money online cheaply, rather than via your bank, for example, or make cash withdrawals from a teller to avoid unnecessary charges.
3. Set Financial Goals
Getting out of debt or increasing your savings are great financial goals to have, but they’re fairly vague and may take a long time to achieve. By setting yourself more specific targets, you can keep yourself on track and stay motivated as you improve your financial situation. You may want to reduce your debt by $1,000 over the next three months, for example, or save an extra $50 a month for a year. Whatever your goals are, turn them into realistic and achievable targets so that you can monitor your progress.
4. Use a Budgeting App
Creating a household budget should be essential for everyone but it’s particularly useful if you’re working your way out of debt. When you use a dedicated app to manage your budget, it’s even easier to keep track of your income and expenses. This means you’re more likely to keep inputting data, which will ensure that your budget is up to date and accurate. With free apps to download on Android and iOS, it has never been easier to manage your money digitally.
5. Get Financial Advice
If you’re unsure how to manage your finances or how to deal with debt, don’t hesitate to get professional advice. With bespoke guidance, you can access customized solutions that will help you improve your financial situation in the short and long-term.
Transform Your Financial Situation
Mounting debt and financial difficulties have a major impact on your quality of life, which is why it’s so important to take back control. As well as improving your finances, knowing that you’re improving your money management skills will give you confidence and peace of mind.
Four Easy Financial Steps To Take In Your 20s
I’m 35 . To teens, I’m ancient, to 20-somethings I’m an adult struggling to relate to them and to 40-year-olds, I’ve still got a lot to learn.
As you can probably tell, today’s post isn’t from me but from fellow frugalista Lauren Greutman, whose book, The Recovering Spender comes out today!
Her savings tips, laid out in these 4 financial steps, will (hopefully) help you avoid the need for “recovery” from your own financial choices, whether you’re in your 20s – or beyond.
My twenties are still recent enough that I remember them vividly. I remember experiences, fun times … and terrible financial choices.
I had multiple credit cards in college. I used them for everything from partying to textbooks.
When I was unable to pay them off, my grandpa stepped in to “help” me by paying them all off for me.
At the time I said, “Woohoo!” But now, I’m like, “What was he thinking enabling terrible spending habits like that?!”
I had a very “I want what I want, when I want it” attitude.
Although I knew debt was something I had to pay off someday, I knew that day was always going to be tomorrow… or so I thought.
Before my husband and I knew it, we were $40,000 in debt, upside-down in a quarter of a million dollar custom home and had a $1,000 spending deficit each month.
On top of that, I couldn’t tell you where 1 cent of that $40,000 was.
It’s not that is snuck up on me, it’s that I just chose to ignore it. I would swipe my cards until they were declined and then move on to the next one. What was I doing to us?!
I was living with my old college mentality while trying to raise our son and afford an over-the-top house. All to keep up appearances. But Grandpa wasn’t coming to bail us out this time.
It took us four years to dig ourselves out of debt. I’m proud that we were able to blast our debt so quickly. But still, it was four years. That’s a long time.
If I can convince you of one thing, it’s to be intentional with your finances in your 20’s when the world is telling you not to. You’re going to pay for it if you don’t… literally.
[tweetthis]Be intentional with your finances in your 20’s. Even when the world is telling you not to. [/tweetthis]
Here are 4 EASY financial steps you can take in your 20’s to better set yourself up for financial success in your 30’s and beyond.
This isn’t a complete list by any means, but these are things you can change right now and see an immediate change in your finances.
1. Learn how to cook
Most of the young adults I know spend so much money on food!
If you are going out to eat for dinner more than twice a week, learn how to cook. Groceries are so much cheaper than restaurants, and honestly, having a group of people over to your place while you cook can be more fun than going out together.
If you’re cooking is good, that’s even better! Ask them to chip in for some of the food. Just learning to cook and buying groceries for the vast majority of your meals will save you hundreds of dollars a month. Guaranteed.
And your food will be way healthier.
2. Make your own coffee
Coffee. It’s a belief system. A way of life. It is joy and comfort in a cup. It is also REALLY expensive from that trendy coffee shop you love. Brewing it yourself at home can get you a cup of coffee just as good.
Did you know that you can get 36-8oz cups of coffee from one pound of beans?
So, if you bought a pound of quality whole-bean coffee and paid $15, that works out to 41 cents per cup.
That’s quite a bit less than $2-$3 a cup. And if you want to get real crazy (like my husband) you can roast your own coffee at home. It’s amazing coffee and we pay about $6 a pound. That’s 16 cents a cup!
Let’s do some more math: $2/cup twice a day from the coffee shop x 7 days a week for a month is $112 /month on coffee.
Also, if your coffee was home roasted and awesome, I bet you could get a couple people you work with to buy it from you for like $1 a cup each day. Set something up where you bring them delicious coffee every morning, they save money by buying it from you. You get to make money and support your coffee addiction. Boom.
Yes, making your own coffee might not make you a millionaire. But it’s an example of something that you might spend money on daily that you can easily do yourself and save a lot. It all adds up!
3. Contribute A LOT to your 401k
As Stefanie explained so well just recently, even though it is more difficult than it was for previous generations, Millennials need to make saving for retirement a priority.
You might be battling a mountain of student debt, rising living costs and stagnant wages. But even during these battles, get your 401k contributions going. Maybe you’re already contributing enough to the get the maximum match from your employer… why not do more?
“Man, I should have spent more money on stuff over the years instead of sacrificing a little bit more for the sake of my retirement.” – said no 57-year-old ever.
Seriously. You are doing ‘future you’ a huge favor by investing extra in that 401k (or 403b, or IRA) NOW. This is one decision you will NEVER regret.
4. Learn something new
When I was little, we had no internet, no Super Nintendo, no home computers… but I did have a rotary phone in the kitchen.
By the time I got to college, everyone had computers, cell phones (dumb phones), internet and free Napster. Technology exploded! It ruled.
Take an interest in things that you could possibly monetize down the road or could make you more marketable to your next employer. Research eCommerce. Take online courses. Ask experienced people questions. Read useful books. Build a knowledge base that you can turn into wisdom through experience. You never know when it will come in handy.
That same 57-year-old with the healthy 401k never wished they learned less in their 20’s.
Take it from someone who was terrible with money in her 20’s and paid the price…
Make intentional decisions with your finances NOW! It will establish good habits so that when the machine of life is plowing forward, you’ll be able to look back and give 24-year-old you an acknowledging nod instead of a glare of disapproval.
I n my book, The Recovering Spender , I tell my story of overspending – how I got my family into $40,000 of debt, what happened when I broke the news to my husband, and then I give you the step-by-step plan we used to become completely debt-free in 4 years.
Learn from my mistakes, implement these easy financial steps now so that you can have more money later!
If you are shopping around for a loan or new credit card, you need a shining credit rating. A credit rating is what lenders use to determine whether or not you’ll be able to repay the loan on time. To create your credit score, institutes look at your history of spending, borrowing and repaying. The better you are at managing your finances, the more likely you are to be given a loan. But even if your financial status has been a bit messy over the years, there are still things you can do to improve your overall score. Here are four important steps to get the lenders on your side.
Show lenders how reliable your are
How to improve credit score? Borrow money, but be sure to pay it back on time. Even if you have never been in the red before, never having lent any money could be a bad sign for lenders. They won’t be able to see a pattern in your repayment habits, something they need to know so they can be sure you are good at paying loans back. You don’t need to prove this by taking out huge loans, though. One easy way to do this is to start a credit card. Just buy one inexpensive item on your card each month, and pay it off in time. If creditors see regular repayments, they’ll trust your more with your loan.
Shut down bank accounts you no longer use
This point counts for old credit cards as well. If you aren’t using them, it means you don’t need them. There’s no point holding onto idle bank accounts and credit cards – you may even be paying unnecessary fees for keeping them open. Not only will closing these accounts help your credit rating, but it will also keep you safer from fraud and financial scams. Now that you have fewer cards and accounts to look after, you’ll be better equipped to manage your finances.
Give the lenders what they want
If lenders see certain information on your application, they’ll look more favourably on you. All banking institutes like to see people with a good employment history. You’ll be in good stead to get the loan if you can prove you’ve been in long-term employment. A long-term home is also an excellent sign to lenders, especially if you own rather than rent. One red light to beware of: having a landline phone looks much better on an application than just a mobile number.
Double check for mistakes
As soon as a lender sees a mistake on your application form, they are less likely to give you the loan. Re-read and double check all your papers before you give in. If possible, it’s a good idea to get a friend or family member to read over what you’ve written. If you apply online, use a spell checker app to help you find any typos.
Now that you have this handy guide, you’ll find your credit score improve in no time at all!
Most businesses today know that their financial reporting is not as good as it should be. Yet many are slow to take action to correct it. The reasons are many, chief among them: other priorities.
If you’ve put improving reporting on your “back‐ burner” wish list, don’t worry. I’ve identified four easy steps that can set you on the path to better reporting.
Schedule a personalized demo to see how Adaptive Insights can improve your reporting.
Step #1: Move your financial data to the cloud
While spreadsheets are low-cost and easy to use, the time your staff spends building reports comes at a cost to your business and leaves money on the table. Why? The pain of gathering data from multiple sources is the main reason. Then there’s the endless wait as your staff manually integrates and reconciles data, creates and checks formulas, updates charts, and formats reports. Finally, you email the report or report book and brace yourself for the inevitable questions and change requests.
Tip for improvement:
Make all the latest financial data your team needs available in the cloud, not buried in separate reports and spreadsheets. That way, Excel reports and web reports are always up–to-date with the latest information, and your team can focus on making decisions, not spinning cycles hunting for the data to make them.
Step #2: Empower users with self service
More systems, more people, more data: It can all slow you down. Reporting that once took a few days suddenly takes a few weeks, and instead of two business analysts, it’s now four. Two factors contribute to this problem: multiple systems that aren’t integrated and redundancy caused by different users in the organization repeating the same data-gathering tasks.
Tip for improvement:
Set your business users free with self-service, so they can get the reports they need themselves, and not rely on others—no matter how big your company gets.
Step #3: Provide a single source of truth
Even small reporting errors can cause big problems, and the more your business depends on manual spreadsheet-based reporting, the more your company exposes itself to risk. According to an Accenture report, 84% of organizations find it difficult to control the quality of financial data and other supporting information.
Tip for improvement:
Move all of your hierarches, calculations, data, and security to one place where everyone can access it. It means if there’s an error, there’s only one place to change it. Everyone has the same view, and everyone is checking the same data for quality.
Step #4: Work in concert with other departments
Stop looking backward. Acting strategically means combining effective reporting and analysis with planning and forecasting—to see the past, present, and future clearly and accurately.
Tip for improvement:
Financial leaders must connect the dots between lines of business and informing operating executives on how to manage. Instead of constantly producing data, get everyone to agree on the same KPIs, metrics, calculations, reports, and data. Move to a cloud-based system that enables collaboration. Finally, embrace dashboards and self-service reporting that deliver visibility into the data business leaders want and need.
Watch the webcast, “5 Reasons to Think Beyond Spreadsheets”
- Ask an FP&A Expert
Kerman Lau is a seasoned finance executive and trusted advisor to business partners and company leaders. He uses his strong systems knowledge to drive innovation, and has implemented planning and reporting systems in companies of all sizes. Kerman is Director of Finance at Workday.
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Effective financial management is vital for business survival and growth. It involves planning, organising, controlling and monitoring your financial resources in order to achieve your business objectives.
Good financial management will help your business to make effective use of resources, fulfil commitments to your stakeholders, gain competitive advantage and prepare for long-term financial stability.
Financial management should become part of the key processes within your business and be included in your ongoing planning.
You might feel that your finances are complicated and confusing but the following ten top tips should help you to gain control of them.
1. Have a clear business plan
A business plan will establish where you are and where you want to get to over the next few years. It should detail how you will finance your business and its activities, what money you will need and where it will come from – see write a business plan: step-by-step.
2. Monitor your financial position
You should regularly monitor the progress of your business. On a daily basis, you should know how much money you have in the bank, how many sales you’re making and your stock levels. You should also review your position against the targets set in your business plan on a monthly basis – see cashflow management.
3. Ensure customers pay you on time
Businesses can run into major problems because of late customer payments. To reduce the risk of late or non-payment, you should make your credit terms and conditions obvious from the outset. You should also quickly issue invoices that are clear and accurate. Using a computerised credit management system will help you to keep track of customers’ accounts – read ensure customers pay you on time.
4. Know your day-to-day costs
Even the most profitable of companies can face difficulties if there isn’t enough cash to cover day-to-day costs such as rent and wages. You should be aware of the minimum your business needs to survive and ensure you do not go below this – see how to measure cash in your business.
5. Keep up-to-date accounting records
If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late customer payments or not realising when you have to pay your suppliers. Using a good record keeping system will help you to track expenses, debts and creditors, apply for additional funding and save time and accountancy costs – see financial and management accounts.
6. Meet tax deadlines
Failing to meet deadlines for filing tax returns and payments can incur fines and interest. These are unnecessary costs that can be avoided with some forward-planning. Keeping accurate records saves your business time and money and you can be confident that you’re only paying the tax you owe. Therefore, it’s important that you meet your obligations – see set up a basic record-keeping system.
7. Become more efficient and control overheads
Is your business operating at its most efficient? Saving energy and therefore money can happen by implementing changes in behaviour and using existing equipment more efficiently. It’s one of the easiest ways to cut costs. Areas to look at in an average office include heating, lighting, office equipment and air conditioning – see save money by using energy more efficiently.
8. Control stock
Efficient stock control ensures you have the right amount of stock available at the right time so that your capital is not tied up unnecessarily. You should put systems in place to keep track of stock levels – taking control of this will allow you to free up cash, while also having the right amount of stock available – see common business mistakes: poor stock control.
9. Get the right funding
It is essential that you choose the right type of finance for your business – each type of finance is designed to meet different needs. Smaller businesses usually rely more on business overdrafts and personal funding but this might not be the best kind of funding for your company – read business financing options – an overview.
10. Tackle problems when they arise
It is always very stressful facing financial problems as a business, but there is help and advice available to help you tackle them before it gets too much to handle so seek professional advice as soon as possible. There are also some initial steps you can take to minimise the impact such as tackling priority debts first and assessing how you can improve your cashflow management – see business debt: help and advice.
The process can take several months or even years, but some actions can generate quick results. ( iStock )
Your credit score is effectively a report card for how you manage your debt. The higher it is, the better your chances of qualifying for credit when you need it and with favorable terms.
If you’re new to credit or you’ve made some missteps in the past, it can take a while to get to where you want to be. But taking steps now to improve your credit score can produce some fast results.
Why happens if my credit score is low?
Life is complicated, and it’s not always easy to stay on top of your finances. But maintaining a good credit history should be toward the top of your financial priorities. Not only will a bad or fair credit score make it difficult to get approved for a loan or credit card, but it can also cause you to pay higher interest rates.
There are multiple ways to raise your credit score. (iStock)
What’s more, your credit history is often used for more than just loan and credit card approvals. While landlords and employers can’t actually view your credit score, for instance, they may choose to run a credit check when you apply for a lease or a job. If there’s something amiss that could be negatively impacting your credit score, you could be denied.
Also, in many states, auto and homeowners insurance companies use what’s called credit-based insurance scores to help determine your premiums. While a poor credit score alone won’t cause a rate hike, it could contribute to one if there are also other reasons to consider you a risk.
Steps you can take to improve your credit score
If you’re looking to boost or improve your credit score, here are some concrete steps you can take:
- Pay your bills on time: Your payment history is the most important factor in your FICO credit score. If you’re behind on payments with one or more accounts, get caught up as quickly as possible, and make a plan to pay your bills on time going forward. “One of the best and easiest ways to build credit is by opening a credit card,” says Mike Pearson, founder of Credit Takeoff. “This puts you on the credit map because it prompts creditors to start reporting your payment history.”
- Keep your credit card balance low: Your credit utilization rate — how much of your available credit on credit cards you’re using — is another important element in your FICO score. Credit experts recommend keeping your balances below 30% of your credit limits, but the lower, the better.
- Get added as an authorized user: If you have a trusted family member with a strong credit history, you may be able to benefit from it. “Ask a relative with a good credit history to add you as an authorized user on one of their credit cards,” says Pearson. “This gives you a chance to start establishing a credit history without being on the hook for any payments.” The arrangement can help prop up your score as soon as it is calculated with the new information.
- Look for credit report errors: Check your credit reports via AnnualCreditReport.com for anything that could be incorrect or fraudulent. If you see something that doesn’t belong, you can file a dispute with the credit bureaus to have it removed. If you need assistance, credit repair companies can help fix credit score problems that arise from erroneous credit report data. Once the incorrect information has been removed, you may see your score rebound quickly.
With some programs, including Experian Boost and UltraFICO, you can also improve your credit score with utility payments and how you manage your money. But for the time being, these may have less of an impact on the actual credit scores lenders use.
“When you’re starting from scratch, building your credit can feel like a slog,” says Pearson. “But persistence definitely pays off, and establishing a good credit history may not take as long as you expect if you’re committed to working hard at it.”