When was the last time you checked your credit score? If you haven’t done it in a while, there may be errors that can cause the score to go down. Per the United States Government, you have the right to receive a free credit report once annually.
The True Cost of a Low Credit Score
Your credit score can range from 300 to 850. If your score is below 580, it’s poor, and you are a high risk to lenders. However, if your score is between 700 and 850, your score is good and preferred by the same lenders. A poor credit score affects every aspect of your life. It can prevent you from getting the best rates on a mortgage or a car loan. It can also cost you a lot of money in other ways too. It will cost you a higher deposit for utilities, prevent you from having access to top-rated insurance companies, and could even cost you a high-paying job.
How Your Credit Score is Determined
There are three main contributing factors that the reporting agencies use to compile the final score. They are your payment history, debt to income ratio, and length of established credit. The three combined make up 80% of your determined credit score.
Raising Your Credit Score
The good news is that if you have a poor credit score, it’s not a life sentence. You can improve it gradually. And, thankfully, there are many ways to do this. Creating a budget for your monthly bills is an essential first step to increasing your overall score. A budget does many positive things for your finances, with the first one, giving you a clear view of where you spend your money and the amount you owe out. Paying your bills on time needs to be your first priority. The second thing is to reduce your outstanding debt. Both of these will help you to raise your credit score sooner than you may think.
Finding Ways to Pay Down Debt
If you are in over your head in debt, making payments by the due date and paying down the debt may seem impossible. However, there are ways to achieve both. First, if you have an existing mortgage and you’ve owned the property for more than just a few years, you can refinance the loan through another lender. This will give you some money that you can use solely to get your bills up to date and clean up some of the outstanding debt. If you’ve already refinanced or your mortgage is relatively new, you can apply for a personal loan or a credit card that offers balance transfers. If those options are not available to you, you’ll need to sell off some of your belongings that have value such as a second car. Sites like https://carsoldforcash.com/ can help you do that quickly with minimal hassle. Or, you might need to take on a second job for a while.
Live Within Your Means
Many people get into financial difficulties due to their reckless spending habits. Instead of saving up for a large ticket item, they purchase things such as a large flat screen TV or a car, without having any money to put towards it. If you want to secure a sound financial future, you must learn to live within your means. This doesn’t mean that you have to do without; it just means that you may have to wait a little longer to acquire some of the things you want.
Why You Need an Emergency Fund
Without having some money tucked away for the unexpected expense, any unexpected repair or illness can cause you to default on your loans and other monthly obligations. Luckily, you can start an emergency fund at any time. Just take a few dollars from each pay period and put it in a savings account explicitly established for unexpected expenses. This way, when something breaks, or someone happens to get sick, you’ll have the money set aside to cover the additional costs.
Your credit score matters. It can mean the difference is getting the best rates versus the worst rates legal by law.