If you ordered a free credit report recently and it reflects a financial history that is less than sterling, it is important to remember that it is never too late to improve your spending habits. Even if you find yourself carrying a substantial amount of debt, there are ways to pay off your loans and credit cards more efficiently. From opening new lines of credit wisely to communicating with your lenders when times get tough, committing to new and improved financial habits can boost your credit score, earning power, and ease the worry you may feel over your current debt.
Be Conservative About Your Available Credit
One way to improve how you use credit is to be conservative in using your credit cards. Think about the balances you currently carry on one or more cards and consider how close you are to reaching the maximum allowed. If you are only a few hundred dollars away from your max, then you may want to think about pulling these cards out of your wallet and leaving them at home, out of sight, until you carry a lower balance. Using all your available credit can reduce the chances of you securing an auto or home loan, and a credit refusal can negatively impact your credit score.
Leaving your credit cards at home when you go shopping can help you lower the overall balance you owe. When you avoid using your credit card for impulse purchases, you also duck interest charges on any purchases you fail to pay off by the end of the month. Use cash or debit cards to pay for everyday purchases, such as fuel and groceries, and pay more toward your credit card’s principal to lower the balance faster.
Work to Live Within Your Means
Many Americans find themselves in over their heads with credit because they use credit cards and loans to live beyond their means. Spending the limit on credit cards, taking out auto loans that have high interest rates and inflated monthly payments, and spending before monthly debts are paid can all ruin your credit in less than a year. Revising your budget can help you see where most of your money is going; however, this may not help if you do not work to change your spending habits first.
As you revise your budget, note what you spend on loans and credit card payments each month, then compare the total cost of these payments to your monthly net pay. If the former exceeds the latter, then you might want to work to change how you spend your money. Use cash or apps that debit money directly from your checking account, move loans to a lender that reduce your payments and interest rates, and track payment due dates carefully to avoid causing late payments that can lower your credit rating.
Understand Hard vs. Soft Credit Inquiries
When you apply for a loan, check your credit score, or are turned down for credit, all these actions can affect your credit in different ways. You may not even be aware of the consequences until you view your credit score and are surprised to find it is not as high as you thought. Understanding what might lower your credit score or hurt your chances of securing loans or a line of credit in the future may help you change bad habits before you take any further action.
An important factor in understanding what affects your credit is understanding the difference between hard and soft credit inquiries. Hard inquiries are usually reported when you apply for credit, no matter whether you qualify. Soft inquiries are usually caused by other people or companies who investigate your credit past, such as a prospective landlord or employer. While these inquiries might be reported, they usually have no effect on your credit score. Be aware of causing hard credit inquiries and only apply for credit when necessary.
Communicate With Your Lenders
The loss of a job, a death in the family, and other unexpected events can derail even the most financially-responsible individual. Should this happen and you fall behind on loan or credit card payments, take a cue from Don Gayhardt, the CEO of CURO Financial Technologies Corp, who fosters open communication as a part of his management style. Contact your lenders and discuss your situation instead of ducking phone calls and ignoring warning letters, as this may make the problem more difficult to repair once collection agencies get involved.
Being honest with your lenders can help them realize your willingness to pay what you owe, and they may even work with you to revise your current payment plan. Others may be willing to waive late fees, especially if you have a positive payment history with them. Keeping lines of communication open can prevent your credit from crumbling.
Establishing or developing new positive credit habits can help you raise your credit score and help ease financial stress. It may take some effort, but the rewards of staying on track with these habits may well be worth it the next time you need to use credit.