Whether you’re a financial expert or just starting to learn about personal finance, managing your money can be hard. How is your credit score calculated? How important is it? These tips could help answer those questions and help you improve your financial well being.*
1. Make a Budget
Evaluating your financial situation is the best way to make sure you are practicing good habits. But you don’t need an expert to review your personal finances and make sure you’re on track. All you have to do is create a budget.
Budgeting is a lot easier than you might think. First, make a list of all of your monthly expenditures, including housing, transportation, food, insurance, childcare, and any other expenses you may have. Then, look at your monthly income after taxes. If you still have money in your budget after all your expenses, you’re on the right track with your personal finances.
On the other hand, if you find that you are overspending, making less than your monthly expenses, or relying on credit cards to fill the gap between your income and your expenses, you may need to balance your finances. Depending on how much you’re spending, you might be able to monitor your budget and correct the issue. But if you are in heavy debt or you’re making a lot less than you’re spending, you may want to seek professional help.
2. Know How Credit Scores Work
Another indicator of financial health is your credit profile. Most people know that a higher credit score means that they will qualify for loans, credit cards, and mortgages more easily and at a lower rate. But most people are never told how credit scores are calculated.
The Fair Isaac Corporation, or FICO, developed credit scores to determine a borrower’s likelihood to pay back a lender. All three credit bureaus—Experian, Vantage, and TransUnion—use this data to determine a score. So, whenever you hear “FICO score”, “credit score”, and “credit rating”, they all refer to the same thing.
Credit scores can range from 300 to 850, based on credit history and habits. Here is the breakdown of how credit scores are calculated:
Once each year, you can request a copy of your credit report to get your free credit score from all three bureaus at annualcreditreport.com, or by calling 877-322-8228. After accessing your free credit reports, you can review the information on the reports, make sure it’s correct, and dispute any false information.
If you see inaccuracies on any of your credit reports such as a wrong address, missed payment, or incorrect outstanding balance, use the information on their website to contact the credit bureau and ask them to review the mistake. Under the Fair Credit Reporting Act, credit bureaus must investigate any disputed items and remove them if they are incorrect.
Spending just a few minutes reviewing your credit reports could protect you from identity theft and keep you on the track to good financial health.
3. Stop Paying Just the Minimum
Also known as revolving your debt, making minimum payments might seem like a perfectly normal habit. The truth is, it could seriously harm your financial wellbeing in the long run. If you only pay the minimum on your debt and keep using your available credit, your credit utilization will rise. If your debt gets too high, your minimum payments could be hard to keep up with, leading to missed payments that cause even more financial stress. Paying as much over the minimum as possible could help you avoid all of these problems, get out of debt faster, and start saving more money.
4. Start Your Emergency Fund
Having money in savings for an emergency can make a bad financial situation easier to deal with. Saving even 10% of your paycheck each month could save you from a financial disaster. But you won’t be able to save money if you’re paying off unsecured debt like credit card or loan debt.
Think of unsecured debt as negative money in your account. If you owe $1,000 and you only have $250 saved, you’re $750 in the hole. And since unsecured debt usually has high interest rates, the amount you owe could go up every month.
That’s why it’s so important to get out of debt as quickly as possible. The faster you’re out of debt, the faster you can build up your savings so you won’t end up in the same situation again.
If your debt situation is so bad that you aren’t able to save up, the first and most important step to improving your financial situation is getting your debt under control. You can do this in many ways, including the debt settlement program offered by Freedom Debt Relief. So if you’re ready to stop making minimum payments and deal with debt head-on, learn about how our program works and see if we could help you clear your debt away faster.
*We are not financial planners and cannot give advice as such – materials provided in this blog is general information – please consult a professional for further information or advice.