You don’t need to wait for your credit score to improve to begin building your financial future. The truth is, you can start saving money right now whether you have good credit, bad credit, or no credit.
While you work on improving your credit, follow these tips to make the most of your new score:
1. Get a copy of your credit report each year
A whopping 47.9% of Americans don’t check their credit score, according to Cardguru. The majority think it’s unimportant, while the rest don’t know how or think it’s a hassle. A total of 8.3% think checking their report will lower their credit score. Approximately 7% of credit card loans are delinquent; a number that might be reduced if people knew exactly how delinquency affects their credit.
Knowing your credit score and knowing the items listed on your credit report are important. You might unknowingly be the victim of identity theft; your credit report will show all accounts opened in your name.
You’re entitled to one free credit report from each bureau (TransUnion, Equifax, and Experian) every twelve months. Order your reports from a government-endorsed source to avoid scams and unnecessary charges. You can get your report online or by mail.
2. Educate yourself about how credit works
The first step to building a financial future is understanding how credit scores work. Once your credit is cleaned up, you’ll be equipped with the knowledge to play the game.
For example, when running a credit check, lenders will see your payment history in detail including how much you’re supposed to pay each month, how much you’ve been paying, and any late payments you’ve made. Lenders look for more than late payments. They also look for total debt to compare to your income to find your debt-to-income ratio. If your overall debt is too high, you could be rejected.
When you’re able to use credit again, don’t max out your cards and don’t apply for new lines of credit too frequently. Too many hard pulls raises a red flag for lenders that you might be desperate or living on credit.
3. Know why you’re rebuilding your credit
Are your rebuilding your credit just to take on more debt and start the cycle over? Or are you cleaning up your past to launch a business you know will make you rich?
Only one of these motivations will end well.
4. Build a foundation of good habits
Once your credit score improves, you’ll need good habits to maintain your score. Start developing good habits by paying your bills on time, even when they’re not being reported to the credit bureaus. Don’t get lazy with bills just because missed or late payments won’t affect your credit score.
Treat every bill you have as if the due date is non-negotiable, including money you’ve borrowed from friends or family. Doing this will train you to:
Find other sources of money
When you know ahead of time you’ll be late with a bill, you have time to find a way to pay it. If you couldn’t pay your electric bill, you’d find a way to get the money. You can do the same with a credit card bill.
Pay bills early when you can
As long as you’re not living paycheck-to-paycheck, there’s no reason you can’t pay bills early. Train yourself into this habit.
Pay more than the minimum amount due
It never hurts to throw extra payments at your credit card bills. Interest is recalculated on a daily basis. If you regularly send in an extra payment a week after you pay the required amount, the interest you save will add up.
Be aware of when paying more comes with a penalty. For example, if you’re trying to qualify for the Public Service Loan Forgiveness Program, don’t pay more than your minimum amount. Overpaying puts you in paid ahead status, which disqualifies your next payment. Here’s why:
To qualify for forgiveness, you need to make 120 on-time payments in the full amount according to your repayment plan. The keywords are “according to your repayment plan.” If your monthly payment due is $300, and you pay $400, you’ll only owe $200 next month. Paying $200 will satisfy your lender, but that payment won’t qualify as a full payment for the PSLF program because it was $100 less than your agreement.
Have a plan
Have a long-term plan, and take out loans with a purpose. Be intentional. Don’t rebuild your credit just to get back into debt. Rebuild your credit as the foundation for your new life and future.