Tips to Improve Credit Score Even on a Smaller Income

Whether you make a million dollars per year or are living off of minimum wage, you are still responsible for your debt obligations.  Credit score is a huge factor in securing not only the best interest rates on the market, but can make or break even getting a mortgage, apartment rental, leasing a car, or could even cost you a potential job.  Even having a small income can’t be an excuse for lacking credit, so you should strive to have the highest score possible.

Make Payments On-Time

First and foremost, if you have monthly bills, pay them on time.  If you don’t, not only will you get late fees, but if you are thirty days late, they will show up on your credit report and severely damage your score, taking years to come off.  A large portion of your credit score is based off of history, so you want to show lenders that you are a responsible borrower when it comes time to application time, where any dip could cost getting you the best rate, which in turn will add significant amount of interest to your payments.

Come Up with Extra Money to Pay Down Balance

It is important to make sure you are out of debt, and I understand that making huge payments to pay down that balance can be tough on limited income, but in order to boost your credit score as your debt decreases and your available credit increases, you may have to come up with extra money somehow.  Now that it is summer, there are always opportunities to pick up a second job, but beyond that, you can have a garage sale, sell items lying around the house on Craigslist or eBay, or even donate items to get a tax break at the end of the year.

Keep Accounts Open, Even with Zero Balance

As you start to pay down and finally pay off credit card balances, your first instinct may be to close the account once it’s at zero balance, but that actually could be a mistake.  By paying the balance down to zero, you now have more available credit and no debt, which will boost your score, but if you close the account you are essentially taking away all of that available credit, so your score could actually decrease as a result.  If you are worried you may still use the card once it’s at zero, you can always cut up the card and still keep the account open.

Don’t Apply for New Credit

When you apply for loans, cards, etc., having your credit pulled is known as an inquiry, and while it may only reduce your score by a few points, having too many credit inquiries on record could give lenders the impression that you are looking to charge up your accounts, so it is best to only have your credit pulled when you are certain you are going to go through with the account, and that you don’t plan on continuing to open accounts afterwards.

Tips to Stay Out of Credit Card Debt

It is so easy these days just to either hand your card over for a purchase, or even worse, shop online, where you can buy with a few clicks, or even faster if using Amazon and you can make a one-click purchase.  It can be easy to fall into credit card debt, so much in fact that according to a recent study by NerdWallet, the average American household has more than $16,000 in credit card debt, and $779 billion for all U.S. consumers.  In order to prepare to be financially free by the time you hit retirement age, although it may seem like too far away to worry about now, you want to ensure you stay out of credit card debt today.

Spend Within Your Means

Sure, it can be easier said than done, but you should only spend what you can afford.  If you don’t have the money in your bank account now, don’t buy it, plain and simple, and if you want it, save up for it.  Either having a budget, or at least tracking your purchases will help in seeing exactly where your money is going, even taking a step further in analyzing purchases line by line and seeing if they were necessary.

Use Cash Instead of Plastic

With the ease of using your credit card everywhere you go, you can continue to run up charges over the next month until you receive the statement in the mail, and it’s from there you have to figure out how you are going to pay that balance by the statement due date.  A good way to avoid the credit card is to give yourself a cash allowance, sort of like what your parents gave you as kids, only being able to spend what you have until the next paycheck, and maybe seeing that cash transaction leaving your hand and into the register will be enough to give an impulse purchase a second thought.

Cut Up and Leave Account Open

If you just can’t seem to break the habit of using your credit card and you find yourself having one too many shopping sprees, you can cut up the credit card (and throw away the pieces so you can’t piece together to still shop online).  If you do lose the card, it is important to leave the account open, no matter the balance, even if it is at zero, otherwise closing the account would reduce your available credit and actually ruin your credit score when you think you are doing yourself a favor.

Remember What It’s Like

I used to have trouble with credit cards, and my motivation to stay on track is that I remember what it was like before, with the weight on your shoulders, wondering how you will ever get out of debt.  Fortunately, I was able to come out ok, but I never want to be in that position again, so if you had the same experience, or even if you have not, listen to us, and stay on course.

A Few Easy Tricks to Help Reduce Monthly Expenses

If you are looking to cut expenses down you are on the right track when it comes to saving a few extra dollars a month, in addition to just taking a look at unnecessary expenses.  Sometimes items that you use (or don’t use) could be cut as well, so it might be a good idea to take a look at what might have thought were normal expenses, and see if you can tweak a little.

Cancel Your Gym Membership

So as soon as January rolls around, maybe even December if you want to get a jump on the deals, you write down your New Year’s resolution that you want to start going to the gym to lose a few pounds.  You get into a rhythm, start going regularly and you see the weight start to come off.  Well something happens where you have to miss a day, and then another, and it’s the whole week you haven’t gone.  Well it gets harder and harder to go back once you missed, and pretty soon you are paying every month and not even going.  Save yourself the $25-50 a month you are spending and start to run, or at least walk, cut the grass, and work on your landscaping outside now that it is nice.

Cut the Cable Cord

Speaking of the weather and being outside, what are you doing inside watching TV anyways?  What better time to cut the cable cord then now.  With all of the streaming like Netflix, Hulu, and Amazon Prime, cable is becoming less and less like a priority with the rise of DVR and binge-watching, showing little need to watch live, and therefore increasing the need to cancel the always rising cable bill.  Without the need to pick specific channels to watch, it is less realistic to pay for all of the channels that are going to waste along with the money in your wallet.

Use Cash Instead of Credit

When you make a purchase and hand over your debit card there can be little thought about the money you have in your account and where you will be after the purchase, let alone use a credit card with virtually an endless amount of spending that could occur before you hit your limit.  In an effort to reduce purchases and at least give thought before handing over your card, try using cash instead of plastic.  You can then physically see the money leaving your hand, and only leaving you a certain amount until your next paycheck.

Skip the Bottle and Drink Out of the Tap

Yes, if you buy a case of bottled water from Costco it can only be a few dollars.  If you’re grabbing a couple for work, having after dinner, and taking one upstairs when you go to bed, you could be going through a case every few days, which if you add up over the course of a month or even a year, it could be huge savings if you could just take a water jug and fill up with the tap water as needed.

Now is the Time to Get Personal Finance on Track

I feel that I had a solid education growing up and into college.  I probably could have paid more attention and applied myself a little better instead of having priorities elsewhere, but when it comes to personal finance I feel like it was not that I was ignoring these life lessons; it’s that I was not taught.  This is not to blame my parents at all, I made my own spending and saving decisions, or lack thereof, but as I even studied business in college, I think there was a gap in what really should have been explained; how to set yourself up for financial success.  Whether you are already into your career or just beginning, it is never too late for a little financial improvement.

Create a Budget

If you do not allocate where your income goes, you could be on a spending free for all each month, so not only creating, but maintaining a successful budget is improvement for a little financial structure in your life.  While noting every dollar that is coming in, first take a look at what comes out first; your necessary monthly expenses such as rent/mortgage, utilities, car lease, and student loan payments.  Next comes items that you will need to set aside enough money for, such as food, gas, and spending money.  This is the tricky part, as you will need to figure out how much how much you should, and can, spend without being excessive.

Reduce Unnecessary Spending

This is where the excessive spending comes in, such as going out to bars and restaurants, shopping, and entertainment funds.  If you take a look at your last credit card/bank statement, go over line by line for purchases that were not necessary monthly bills, and circle each, adding up the total spending.  It will probably shock you, so the next step would be to see which items could have been avoided and work towards reducing unnecessary spending going forward.

Create an Emergency Account

While on a strict budget, any sort of unexpected expense can throw your successful planning out of whack, so you want to give yourself a little cushion.  You never know when you might have an auto repair come up, an unexpected home repair needed, or even worse, an unfortunate job loss.  For purchases, it would be nice to have the money readily available so that you do not have to put it on a credit card to try and figure out how to pay for it later.  Experts say you try and have three to six months’ worth of expenses available, though some will say six months may be too much and could have been better spend investing.

Contribute to Retirement as Soon as Possible

Although it may be the furthest from your mind, start saving for retirement as early as possible; you will thank yourself later.  Even if money is tight, if your employer offers a matching 401(k) program, at least put in the maximum company match, otherwise it could just be leaving free money on the table.