Personal finance is a topic many avoid, but rather it should be something addressed more commonly. Topics range from budgeting to investing, retirement to insurance, however, one topic many always wonder about is credit and credit scores. A simple definition of a credit score is a number that defines how you handle debt. Having a healthy credit score will save you money down the road through lower interest rates. This article will review what factors go into your credit score, as well as ways to increase your score should it be on the lower side.
When reviewing your credit score, it’s important to understand the different variables that made up your score. First and foremost, paying your debts on time is critical to having a healthy credit score. Should you miss a payment or two and it is sent to collections, your credit score will be negatively impacted.
Another factor that goes into formulating your credit score is credit utilization. What this means is if you have two credit cards with $500 limit each, and you use $800 total, you have high credit utilization. If you max out both cards and have high credit utilization, it will have a negative impact on your credit score. To avoid this, ensure you are using credit wisely and paying down debts quickly. Using credit intelligently is critical to having a healthy credit score.
Lastly, ensuring you have a healthy amount of debt or lines of credit will benefit your credit score. Having too many loans or credit cards can negatively impact your score as it may predict you are highly leveraged. Only borrow what you need and ensure you have a healthy cash flow so you are not reliant upon debt.
If you find yourself with a low credit score or having negative marks, here are a few ways to clean up your score. First, ensure all payments are out of collections. Having payments in collection will be a red flag to potential lenders as they may think you are unable to pay debts on time. From there, ensure your lines of credit have low utilization rates. High utilization rates can indicate a dependency on debt. Lastly, ensure you are paying off debts quickly and only using debt in a healthy manner.
Other ways to help boost your credit score is by implementing a budget for your cash flow. Controlling where your money goes is one way to increase financial health, which in turn will reflect in your credit score. If you find yourself having difficulties, check out our services regarding credit and finance. Ensuring you have a healthy financial appearance will not only save you money in interest should you need to borrow, but it may allow others to have confidence in your financial decision-making. A 1 on 1 strategy session will also allow us to take a look at your goals and visions, and discuss any roadblocks. Healthy credit and solid budgeting go hand and hand, which will certainly set you up for future success.
Ready to get out of DEBT improve your CREDIT and start building WEALTH? Schedule your session today.