You need to know how to work the system.
Right or wrong, your credit will determine your future. A strong credit score will allow you to live the lifestyle you want and build wealth and security. The good news is anyone can build or improve his or her credit! You don’t have to be rich or have a lot of education. You just need to know the rules. If you follow the rules, then you get a better score.
Here are my top 10 tips to better credit:
1. Get a credit card. I know, this seems dangerous. But this is probably the most important first step. You may only be able to get a secured credit card, and that is ok. You want to make one small purchase on this card each month and pay it off in full. Your small purchase can be a tube of toothpaste or a trip to the gas station, but you must pay it off in full every month. I recommend eventually getting at least 5 credit cards and doing the same thing on each card every month – one small purchase, pay off in full. Never carry a balance from one month to the next.
2. Never miss a payment. When the mail comes in, it may be tempting to set a bill aside and tell yourself you’ll think about it later. But missing even a single payment can have an impact on your credit score. Set an alarm on your phone to make sure your bills are paid on time. Pay the entire balance, or pay as much as you are able.
3. Open a bank account. Consider going to a credit union or a local bank to set up a new service. If you are concerned about overdraft fees, then open a bank account for savings but use a pre-paid debit for day-to-day purchases. This way you will have the benefit of a bank account and not run the risk of overdraft fees.
4. Don’t close old credit card accounts. If you have a credit card that has been in your wallet for a decade or more, that’s actually great when it comes to building your credit history. Keep those cards open whenever possible.
5. Dispute errors on credit report. Errors are common on credit-bureau reports. Names can be confused or you may have gotten dinged for a late payment that wasn’t the case. If you can fix these mistakes, it will raise your credit score.
6. Check your credit report, and check it often. This is easier and cheaper than ever, especially with apps available like Credit Karma, which everyone at my office uses (they do not pay me anything to say that!) Credit Karma is free, and you can check as often as you like to ensure there are no mistakes. I also love Credit Karma because my clients can keep track of their progress and watch their credit score increase over time!
7. Create a budget. Pretty much everyone hates this word. But a budget doesn’t need to be complicated. Track where you’re spending for a month, and it will reveal much more about your habits than you may realize. Hammer down and keep what you’re spending from overflowing what’s coming in as income.
8. Pay down your debts. This is easier said than done, of course. After your basic living expenses are paid every month, you should be able to put some money toward paying down your debts. Go one debt at a time, and pay it off completely. Then move on to the next debt. If your balances are not going down or if you don’t have any money left over after your expenses are paid, then you may need to look into other options to clearing up the debt.
9. Avoid people who want to give you a “quick fix.” Some companies claim that they can repair your credit – for a fee. Other “debt consolidation” companies promise fixes that will take years and cost thousands of dollars. I often see people in my office that have tried many other things before coming to see me, and regret all the time and money wasted. There is no way for these firms to remove negative information from a credit report if it is correct. It takes time and good advice to fix issues.
10. Consider bankruptcy. If you are unable to make progress on your debts, you should consider getting a fresh start. Bankruptcy is often the quickest way to repair credit. Once the slate is clean, you can actively rebuild right away. With diligence, your credit score can be in the mid-700s and higher within 18 months of filing.