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Did you know that your credit score is one of the first things potential landlords, lenders and even employers look at to determine if you’re trustworthy and financially stable? Having a good credit score shows others that you’re responsible with money and that you have a history of paying your bills on time. Improving your credit score may seem like an uphill battle, but it’s not impossible. With some effort and planning, you can increase your financial stability by improving your credit. Financial stability is the measure of how well you manage your money on a day-to-day basis, as well as savings for future expenses or unexpected costs. Being financially stable requires discipline and planning in order to safeguard against financial hardship, but the hard work pays off when you’re able to do important things like paying off debt and getting a loan for a rental property.
Review Your Current Financial Situation
Before you decide on which strategies to use to improve your credit, it’s important to take a look at your current financial situation. Begin by taking stock of your monthly expenses and your debt load. This will help you see where you might be able to make adjustments and increase your overall financial stability. If you have a credit card balance, take note of the interest rate you’re paying. Credit cards come with high interest rates, so it’s important to pay them off as quickly as possible to avoid incurring high costs. If you have a student loan, make sure you are making payments on time. Missing payments on a student loan will negatively impact your credit score and could lead to a garnishment of your other income. It’s also important to take stock of your assets and savings. This will help you see what resources you have available to you in case of an emergency.
Find Out What’s Causing the Problem
Before you can figure out how to eliminate your financial problems, you need to first understand what’s causing them. Start by taking a look at your credit report. You can get a free credit report from each of the three major credit bureaus, Equifax, TransUnion, and Experian, once a year. Take a look at the information listed in your report to see which areas you need to work on. Bad payment history and high credit utilization are two of the biggest factors that affect your credit score. If you are frequently paying bills late or not at all, it will negatively impact your credit score. If you’re regularly paying your bills late, there may be an underlying cause. It’s important to figure out what’s causing you to pay bills late so you can fix the problem. Credit utilization is the amount of debt you’re carrying compared to your total amount of credit. If you’re carrying a lot of debt relative to your credit limit, your credit score will be negatively affected.
Figure Out How to Eliminate That Problem
Once you understand what’s causing your financial problems, it’s important to figure out how to eliminate that problem. Look into ways you can improve your credit score. This will help you reach financial stability faster. Here are some ways you can improve your credit score. Your payment history is 35% of your credit score, so this is by far the most important factor. The less debt you have, the better. Paying off high-interest debt like credit cards first will help you improve your credit score faster. If you have a history of timely payments and debt, but your credit report doesn’t reflect that, you can add positive information to your credit report by using a credit builder loan.
Commit to a Budget
Creating a budget will help you see where you can cut back on spending and save more. When expenses are clearly laid out in black and white, it’s much easier to make tough decisions. You can use many different types of budgeting methods, but the most important thing is to use one that works for you. Keep in mind that budgeting isn’t an overnight process. It takes time, effort and dedication to make a budget work for you. Start by tracking your current expenses. Keep track for a few months to get a clear picture of how much money you’re spending each month. Next, make a list of your monthly expenses. Once you have a clear picture of how much you’re spending, you’ll be able to find ways to save more money. Making a budget is now even easier with programs like Excel.
Pay Off Debt
If you have high credit card debt, it’s important to pay that off as quickly as possible. This will help you avoid costly interest payments and get your credit score back on track. You should always pay off the card with the highest interest rate first. If you have multiple credit card debts, prioritize paying off the debt with the highest interest rate first. If you have chosen a debt repayment plan, make sure you are following the plan to a T. Missing payments or paying off one debt before another will lower your credit and make it harder to reach financial stability. If you have multiple sources of debt, consider using the debt avalanche method or the debt snowball method to pay off your debt fast. The debt avalanche method prioritizes paying off high-interest debt first. The debt snowball method prioritizes paying off the smallest debt first.
Save Money for an Emergency Fund
Having an emergency fund is a must for financial stability. In fact, the financial planning Standards Council of Canada (SCC) recommends having three to six months’ worth of living expenses in an emergency fund. Having an emergency fund will help you cover unexpected expenses such as car repairs or medical bills. This will keep you from having to take out a high-interest loan or using a credit card, which could negatively impact your credit score. If you don’t have an emergency fund, start thinking about ways you can save more money. Every dollar you save will help you build up your fund faster. You can start by looking at your monthly expenses and seeing where you can cut back. Be sure to leave enough money for your monthly bills, as well as an amount for monthly savings. You can also start a side hustle to earn extra income and save even more money for your emergency fund.
Increase Your Income
One of the best ways to increase your income is to get a raise at work. This can be a challenge, especially in a tight job market. But if you’re working at a company that offers this, a pay raise can help with your financial stability. You can also look for ways to make extra money by doing side hustles. You can use this extra income to pay off debt, save for an emergency fund or put money towards a new mortgage. You may also be eligible for government assistance, like the Working Income Tax Benefit (WITB). This benefit is designed to help low-income individuals, like those in minimum-wage jobs, make ends meet.