Improving and maintaining your credit is an important step on your path to financial success. Credit is an integral part of our lives that can impact where we live, the kind of car we drive, and even where we work.
Having good credit can bring down the costs associated with borrowing money. Having bad credit can do the opposite and can also preclude us from being able to borrow money.
I know from personal experience how bad credit can negatively impact your life. In my 20’s, I made a lot of money mistakes and I’m going to share what helped me get past them.
I’m interested in helping you improve your credit so you can get the most out of your financial life.
Here’s what we’ll cover:
- Understanding credit and your current situation
- What are the factors that go into my credit score?
- How do I improve my credit score?
- How long does it take for my credit score to go up?
- Your credit improvement plan
Understanding credit and your current situation
A credit score is a number from 300 to 850 that measures your credit-worthiness; meaning your ability to pay back money you borrow.
Banks want to lend money to people who are likely to pay them back. With that in mind, the cost to borrow money for someone with a credit score of 850 will be less expensive than the cost for someone with a credit score of 300.
A credit score above 700 is considered “good,” and working to get a credit score of at least 620 is a wise initial goal because that will allow you to do things such as quality for a conventional home loan.
As I mentioned in the opening, the better your score, the lower the cost of borrowing money.
To understand your current credit situation, there are a handful of things I want you to do which will help us a later on:
- Get a copy of your credit report. You’re legally entitled to a free copy every year from sites like AnnualCreditReport.com
- Figure out your credit score. You can contact your existing lenders (Credit card companies, student loan providers, auto loan providers)
- Get your personal budget together If you don’t currently keep a budget, you can learn how to develop one here)
- Get a total accounting of all your existing financial accounts (Credit cards, bank accounts, auto loans, home loans, investments, etc)
What are the factors that go into my credit score?
There are many factors which go go into your credit score
- Your history of bill payments (Do you make your payments on time)
- How many credit accounts you currently have
- How you’re using your credit (also known as utilization)
- How long you’ve had your credit accounts
- Recent applications for new credit
- Any negative history such as collections, foreclosure or bankruptcy
Again, these are objective measures lenders use to determine how likely someone is to pay back the money they’ve borrowed.
How do I improve my credit score?
There are a lot of ways to improve your score, some which may seem obvious
- Properly use your credit and make all payments on time. If you’re able to set up automatic payments, that can help ensure on-time payments
- Reduce your utilization to 30% or less. If you have $10,000 of available credit, bring your balance to $3,000 or less
- Pay off existing debt
- Keep old accounts open
- Reduce the number of new credit applications. If you must open new accounts, proactively try and open them around the same time
How long does it take for my credit score to go up?
When you start properly using credit, your score can improve in as quickly as three to six months.
Negative events like foreclosure, collections or bankruptcy can stay on your report for seven to 10 years.
Your credit improvement plan
I’m going to provide you with all the resources you’ll need to improve your credit, but you need to make an important decision; are you ready to do what it takes?
The first step to making any important change is to make that decision to do so. Whatever brought you here, ask yourself if you’re really ready to do the things it will take to get where you want to go.
The next step is to take an integrated approach. I can give you all the tips and tricks to improve your credit, but it will take more than that.
Here are the steps to follow
- Get clear on your goals and values. This will help you figure out where you want to go and why. We have a Goals Course and a Values Course which you can access at no cost.
- Know your facts. You need to understand your cash flow and your budget. This will help you to know which (if any) changes you’ll need to make.
- Get out of debt. This is a key priority for many Americans. Not only will it improve your credit, it will improve your peace of mind as well. We have a Get Out of Debt course which you can access at no cost.
On top of the course, one of our Partners, Woven, has a great app that can help you get out of debt faster and more efficiently.
If you’re able to qualify for a 0% credit card, consolidate all of your balances onto one card.
A personal loan could also make sense to pay off high interest rate credit cards and consolidate all your consumer debts. You can explore options with one of our Partners, Best Egg personal loans.
- Go through your credit report. It’s estimated over 40 million Americans have discrepancies on their credit reports. When going through yours, here are some things to look for:
- Accounts which shouldn’t be there
- Accounts which have been closed but are still appearing as active
- Addresses, phone numbers and or names which shouldn’t be there
All of these things should be treated as red flags and should be dealt with immediately.
One of our Partners, Dovly, can help you to clear up any items which should not be on your report. I also encourage you to listen to these past LifeBlood podcast episodes on how to best handle your credit.
- Make any necessary changes. If you’re living paycheck-to-paycheck and there’s no money left over at the end of the month, you may need to make some temporary changes. Are there opportunities for you to earn more money? Are there any ways for you to live on less?
I mentioned at the beginning that I’m interested in helping you improve your credit so you can get the most out of your financial life.
I know from personal experience how lousy being in debt and living paycheck-to-paycheck is and I’m interested in helping you to break free of that vicious cycle.
If you’d like some additional support, you can have a no-cost chat with one of our Partners who can help improve your credit and get on the path to financial success.
Dig deeper with our Improve Your Credit course.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
If you’d like help getting on the same page with your partner, check out our Same $ Page Course.
If you’d like to help your kids get good with money, check out our Teaching Kids about Money course.
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Check out the LifeBlood podcast.
Good luck on your journey and let me know how else we can support you!