How to Improve Your Credit Score
- Moving from bad to good credit takes time, strategy, and discipline.
- Finding the right budget can be the foundation for improving your credit score.
- Although the factors of obtaining a high credit score are the same, the journey to good credit is not always a one-size-fits-all.
Unfortunately, in the world of credit, one mistake can cause your credit score to really take a hit. For some people, it takes a lot of work and time to push themselves from bad credit to good credit. Whatever the case, people want to know the magic fix to clean up their credit.
For some, working with a credit repair company may be best, but it is not necessarily a requirement to improve your credit score. Instead, one of the best things you can do to help your credit is to have healthy financial habits. One of those habits, which can be somewhat of a controversial word in the financial world, is learning to budget.
Finding the Right Budget
There is no one size fits all, and therefore, multiple types of budgets you can choose to use. It is vital to create a budget that works for you and that you can stick to over time. Doing so is one of the early steps to help your credit score to improve because everything else will stem from that budget.
Fixing credit takes time. It may not always feel like you are moving forward when working on your finances. However, the investment in creating and sticking to a budget will help improve your credit score in three ways, as discussed below.
Budgeting improves your payment history.
One of the biggest factors that can hurt your credit is late payments. A messy budget increases your chances of running out of money before paying your bills. On the other hand, organizing your budget can help you prioritize payments.
If you discover that you are not bringing in enough income after you start working on your spending plan, it's not the end of the world. Instead, you can work towards increasing your income or reducing expenses so that you can pay your bills on time.
Recommended Read: 4 Benefits of a Side Hustle
Budgeting reduces your credit card balances.
If your budget is balanced, it will make you more disciplined when it comes to your credit card. If you've set a strict budget, it will stop you from overspending, and instead, you will be paying off your balances.
Your credit card balance has an impact on your credit score. If your balance exceeds 30% of the credit limit, it will cause a decline in your score. Ideally, you want to ensure that your credit card balance is always at the 30% mark or below.
Budgeting helps find ways to save money.
When you start paying attention to where you are spending, you often discover unnecessary money that you have been spending. Once you can identify wants that you can do without, it allows you to eliminate those things and keep more money in your pocket. Then, you can use that money to add to your emergency savings or make extra debt payments. The less bad debt you have, the better your credit score.