Good credit score is an important factor
to be considered before you apply for a loan or any other type of credit.
A good credit score will not only
help you in the present, but also in your future. If you have a bad credit
score, it can affect your ability to get loans. It will also impact your
chances of renting an apartment or getting approved for utilities like
electric, gas, or even phone service.
Step 1: Determine the Cause for a Low Credit Score
Credit utilization refers to the
amount of debt you have relative to your available limit on revolving accounts
such as credit cards or lines of credit. It can be calculated by dividing the
balance on all revolving accounts by the total amount you are eligible to
borrow across all revolving accounts. Credit utilization is 30% of your score
and should be kept below 30%.
Step 2: Make a Budget and Stick to it
Budgeting is a skill. It's not about how
much money you have but rather how much you're willing to spend on the things
that matter the most to you.
In this section, we will be looking at
some of the basic concepts of budgeting and what it means to "make a
budget and stick to it." We will also look at how your credit score can
affect your spending habits.
Step 3: Cut Out Unnecessary Spending, Especially on
Lifestyle Items.
In order to qualify for a mortgage, your
credit score will need to be at least 620.
If the credit score is below 680, then a
lender can request a larger down payment or higher rates. If the credit score
is below 640, then a lender might not be willing to offer any type of mortgage
at all.
Just because you have a high-paying job
doesn’t mean that you are financially secure. Your lifestyle can still put you
on the fast track to bankruptcy if you are not cautious with your spending habits.
Step 4: Set up Auto-Payments with the Bank for All of Your
Bills (to keep everything up-to-date)
Auto-payments are a great way to ensure
that you don’t miss a payment and that you stay on top of your finances.
You can set up auto-payments for all of
your bills, which will help you keep them up-to-date. This way, if your credit
score is not in good shape, it won’t be affected when you miss a payment or
make an error in payment.
Step 5: Pay Down High Interest Debt First (high interest
debts like credit card debt, car loans, and payday loans)
We need to pay off our debts in order of
interest rates.
The first debt we should pay off is our
high-interest debt.
High-interest loans are loans that have
annual percentage rates greater than 10% and include credit card debt, car
loans, and payday loans. These debts will cost you the most because they accrue
more interest than other types of debts, so it's important to pay them off
first.
Step 6: Always Use a Separate Checking Account for Personal
Spending
Using a separate checking account for
personal spending is a good idea because it allows you to keep track of your
spending habits.
It's recommended to use a separate
checking account for personal expenditures, because the ones with lower credit
scores will not be able to use them and this makes sure that your financial
information is not mixed up with your personal information.
Step 7: Create and Maintain an Emergency Fund
It is a good idea to have a stash of
saved money you can use in case something goes wrong. This money can be used
for anything from an emergency car repair to the sudden need for a dentist
appointment. It is important that this emergency fund be separate from your
bank account and other assets because, if you get into financial trouble, your
creditors could seize your assets to pay off debts.
In order to maintain a good credit score,
it is important that you only withdraw from this reserve fund when absolutely
necessary. If you use too much or withdraw too much, it could cause the bank or
creditors to lower your credit score and make it harder to borrow money in the
future.
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