How to Fix Your Credit Report on a Budget
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Having good credit is something that we all strive for, but it is not a reality for some. But that doesn’t mean that you have to let it dominate your life. We specialize in credit repair and can help you get your credit score to where it needs to be.
Repairing your credit is essential because of the impact that a bad credit score can have. When your credit score is bad, it can mean difficulties in obtaining an auto loan, student loans, a mortgage, credit cards, and any other type of financing.
Your bad score may not completely keep you from qualifying, but it can make it vastly more difficult. Not only that, your bad credit score can mean the highest interest rates possible. That will cost you thousands of dollars on just about any loan that you are able to qualify for.
It is important to remember that you did not get into a position of a bad credit score overnight. It is also important to remember that you likely won’t get out of that hole overnight, either. So, if you are looking to improve your credit score and your financial footing, there are steps that you can take.
Fixing Your Credit on a Budget
In an ideal world, we would have the funds needed to pay off any debts or credit card balances that we might have. But that is not an ideal world for the vast majority of us. We have other bills to pay, families to support, and only so much money that can go toward paying off debts and fixing our credit.
But that doesn’t mean that you should give up on the idea of paying down those debts. This is where creating a budget can be so valuable. It isn’t fun and it is far too easy to fudge the numbers when you become self-conscious about spending habits.
Creating a budget, however, is the quickest way to know what you’re bringing in, what is going out, and how much you can afford each month toward paying down those debts. With a simple budget, you can create an efficient method to pay down your debts and improve your credit score in a far shorter time span than you may have realized.
Thankfully, there are a variety of tips out there that can help you formulate the budget that you need and get you on your way to improving your credit score. These are not a proven science, but they are helpful tips that can get you moving in the right direction.
Choose Your Tool
Before you can actually start to understand the numbers themselves, it is important to decide how you will manage your budget. This can be done in a number of different ways, but the two most common methods are through spreadsheets or online tools.
The goal here is to choose an option that will be the easiest for you. Making things easier can help to offset the unpleasantness and negativity that can surround creating a financial budget. The great thing about picking one of these tools is that it doesn’t have to be permanent.
If you don’t like the choice that you have made, you can switch over to another format when you have gotten a basic handle on your budget. Try to find the tool that fits your needs and stick with it, though. Too much hopping back and forth can create disarray and confusion that throws your budget off.
Know the Flow
You need to know what is coming in and what is going out. It can’t be a ballpark or a rough estimate; it has to be down to the penny. You can then round up or down (for expenses or income, accordingly). There is a simple way to know what your cash flow is.
Start by adding up your income. Know what you are bringing in after tax. This income is generally measured on a monthly basis, but if it is easier for you to measure weekly or bi-weekly, go that route instead.
Make sure that you add any other guaranteed income that you will have each month. This can be a side job, social security, investments, and the like. If the amount fluctuates each month, take the lowest guarantee that you get. So, for example, if you have a side job that can bring in anywhere from $200 to $500 each month, you would want to count the $200 toward your monthly income. Anything after that is a bonus.
Tally expenses. Next, you will want to start with all of your expenses. Most of them are recurring and are easy to predict effectively. With something such as a gas or electric bill, which can change slightly from month to month, you would want to round up. This will ensure that you can cover the highest amount and if it turns out to be less, that is even better.
You will also want to keep in mind anything that you spend in a discretionary manner. This can be eating out, buying clothes, or entertainment. Also keep any debt payments or savings contributions that you make each month.
Keep Every Dollar in Mind. When comparing your income to your expenses, every single dollar should be accounted for. For example, if your after-tax income each month is $5,000, your expenses should not exceed that amount.
If you use only $4,500 each month to cover those expenses, then you can use that remaining $500 to pay down debt or add to your savings each month. The point is to know where that money is going. If your expenses come out to more than you make, then you need to find ways to cut back on your overall spending or increase the amount of money that you are bringing in until you can cover your monthly expenses.
Track it All. On paper, everything is accounted for. But life functions much differently than “on paper.” Track your spending each month to see what your financial reality is. There are a variety of tools that allow you track the money coming in and going out, typically through online banking transactions.
Doing this is not only a great way to see how you’re spending, but keeping aware of any mistakes or cash payments that you might be making. Most importantly, this will reveal your spending habits. You can analyze what can change each month and adjust accordingly.
Pay Down Debt Where Possible
Again, getting into a bad credit situation doesn’t happen overnight and getting out of that situation doesn’t happen overnight, either. It will take some time to set things right, but you can set them right. It just takes planning and discipline.
Try to set aside a certain amount each month for paying debts and credit cards. Even doubling a credit card payment each month can knock down your payment time by a substantial amount and keep your payment history looking good.
When you do this, you can keep solid on your payment history, which accounts for 35% of your FICO credit score. Even establishing a trend of good payments can have a very positive impact on your credit, so keep that in mind.
Your credit utilization is important, too. This is the amount of credit that you are spending from your available amount. You would want to stay at or under 30% of that total amount. So, for example, if you have a total credit limit of $10,000, you would want to stay at or under $3,000. Anything higher can begin to have a negative effect on your credit score.
This means having the discipline to not add to your debt. Try to avoid putting any additional money on your credit cards or taking out other loans. This will allow you to chip away at your debt over a few months and make a substantial impact.
If at all possible, try not to carry a credit card balance from month to month. It may not be the reality for most, but paying off your credit card each month can be a great way to show that you have a positive payment history and can also keep your credit utilization low as well.
Having bad credit doesn’t have to be the end of the world, but no one is going to get you out of that hole for you. There are tools to help you along the way, but accepting responsibility for your credit situation and being willing to make the necessary changes is where the largest impact will come.
Don’t let bad credit hinder your life any longer than you have to. There are steps that you can take in the short and long-term that will help to improve your overall credit score. This will put you in a much better situation to qualify for the things that you want and get some of the best rates on the market as well.
Ready to take your Credit to the
Ready to take your Credit to the