Life insurance is a topic most people like to avoid for obvious reasons, but it’s also a necessary topic that we should discuss with our loved ones. Life insurance is not something purchased to benefi...
Do you remember when you turned 18? You may have enrolled in college or joined the workforce. Undoubtedly, you were faced with the decision whether or not to open a line of credit. It's no surprise; credit offers are everywhere, and it's difficult to escape them.
While there are definitely some perks to obtaining credit cards, what happens when you foolishly maxed out your credit card? Did you get another credit card with zero interest for 12 months and make a balance transfer? Did you find yourself not being able to pay off the credit card within 12 months and get another credit card to "live off of?" To make matters worse, did you make late payments or no payments at all?
This is just one of the scenarios I see on a daily basis with my clients. One of the biggest life lessons that will prove valuable over and over again: the credit-related mistakes made in your past will come back to haunt you in the future, if you intend on purchasing a home or vehicle. Your payment history, types of credit use, new credit, length of credit history, and amounts owed play a huge role on the importance of a FICO® score, which in turn determines if you're eligible to make a significant purchase such as a home or car purchase.
The silver lining to this story is that even though you may have a terrible credit score, it is not finite. Your credit score changes on a monthly basis, and there are a number of things you can do to help you steer in the right direction. Use these four steps to help you begin improving your credit score today:
1. Find out what your credit score is
Find out your credit score and determine if you would like to maintain or improve it. Get copies of your credit report from all three major bureaus. You can obtain a report once per year from each bureau for free (Equifax, Experian, TransUnion).
While your credit score alone does not determine whether a lender can issue you credit, it is very important. Credit scores range from 300—850; generally, scores above 640 are considered good. The components of FICO scores are made up of five categories: length of credit history, credit mix, new credit, payment history, and how much you owe. Once you determine where you stand, work to improve or maintain your credit score.
2. Pay down your outstanding debt
Start by putting a stop to your credit card usage. Next, use your credit report as a reference to list all of your open credit. Use your credit card statements to determine how much interest you're paying on each card, and prioritize which ones you'd like to pay down first. Try to pay off credit lines with highest interest first, while maintaining minimum payments on the rest of your credit cards.
Some people may feel like paying down their debt is unattainable, but with the right plan and the perseverance, you CAN BE debt free. There are numerous financial advisors such as Dave Ramsey and Suze Orman who have strategies on how to get out of debt; find an advisor and strategy that works best for you.
3. Make on-time payments a habit
Once you have a plan, be sure to adhere to it because your credit history contributes 35% to the overall credit report calculation, and late or missing payments are not easily corrected. If you have a pattern of making late payments and then make a series of on-time payments, your FICO score should increase. Make it easy: Set reminder alerts for yourself on your smartphone or calendar so you won't forget to make a payment.
4. Monitor your credit usage and your score over time
I can't stress enough how important it is to monitor your credit score and the plan you put in place to increase your credit score regularly. Sites like CreditKarma, WalletHub, and Identity Guard offer free credit monitoring yearly and/or on a trial bases. It won't always be easy, but nothing will compare to the satisfaction you will feel when you decreased your credit utilization, and increased your credit score!
The importance of a credit score can mean the difference of paying a 3.5% rate versus a 5.5% (or higher) interest rate on purchases such as your car or mortgage. There are many advantages to having a high credit score, so don't let your actions of the past be a barrier of your future.
If your goal is to improve your credit score, you can begin by making a budget for yourself and sticking to it. Budgeting can be easy, and you can start saving money by making these 7 simple lifestyle changes!
Kelly Tramontano is President and CEO of SWBC Investment Services and SWBC Investment Company. Since assuming this position in 2001, Kelly has created a Broker Dealer and Registered Investment Advisor (RIA), doubled the number of institutional clients, established a Wealth Management solution, and developed a platform for independent advisors. Kelly’s outstanding achievements qualified her as an MVP, and a member of the Century Club, Ambassador’s Club, and the President’s Club. She was named as Financial Network’s Outstanding Financial Institutions Division Representative of the Year in 1999 and was recognized as a Top Ten Achiever for 2001. Kelly was also named as one of San Antonio’s top “40 Under 40” Rising Stars and serves on a variety of boards and committees in the community.