It may seem like a daunting task to create a financially secure life. However, you don’t need to be a skilled financial expert to realize the importance of personal finance management. You are the one responsible for the stability and financial well-being of your life. If you had some issues with personal finances that led to a poor credit rating, there are some money management tips that can help you improve the situation and boost your credit.
Basics of Credit Rating: What Is a Good Credit Score?
What’s a good credit score? A rating between 670 and 739 is considered good. You may find credit score ranges on the FICO website to determine whether your current rating is excellent, good, fair, or low. Generally, this figure plays a huge role in a person’s financial life. Your credit report may affect your ability to obtain insurance, find a suitable place to live, land a well-paid job, and get credit cards with a $1,000 limit guaranteed approval or qualify for personal loans.
The FICO credit score of a person serves as a broad-based, independent standard measure of credit risk. Lenders, regulators, brokers, and investors often rely upon this measure for assessing credit risk that is fair to both lenders and consumers. It was reported that the average FICO score keeps on rising despite the pandemic and it now stands at 716. This figure is eight points higher compared to the average score a year ago.
Credit score scale factors:
35% – payment history
30% – amounts owed
15% – length of credit history
10% – new credit
10% – credit mix.
Money Management Tips to Have Good Credit Score
1. Make a Budget
It may be challenging to take control of your personal finances straight away. Budgeting may be a beneficial solution to help you manage your money and reach financial goals. A monthly budget can account for all your monthly income including your regular paycheck and side gigs. The main point of budgeting is to demonstrate the way you spend your money.
One of the most popular budgeting frameworks is the 50/30/20 method. According to this approach, the aim is to allocate half of your after-tax income on necessities (mortgage/rent, groceries, auto payments), and 30% of your income for other expenses (phone, debt repayment). The rest 20% should go toward your savings: you should establish a solid retirement fund and build up emergency savings as well.
2. Repay High-Interest Credit Card Debt
The average interest rate banks charge credit cardholders with an unpaid balance is 17%. If you strive to build your financial security and get the highest credit score, you need to pay off high-rate credit card debt. Recent facts show that the average US credit card debt is $15,762.
After you repay the balance and improve your credit rating, you will be able to qualify for a balance transfer deal to a new credit card. If you are looking for alternative solutions, you may also try an avalanche strategy.
This method means you should pay the minimum due every month on your credit cards, and then add more funds to the credit card charging the highest interest. Once you repay this card, you should shovel the additional payments to the card with the next-highest interest rate until the whole debt is paid off.
3. Create an Emergency Fund
No doubt having some cash set aside can help you overcome financial emergencies. If you want to avoid a monetary shortfall and improve your credit rating, you should make solid savings in your emergency fund. Building a safety net can protect you from various disruptions and unforeseen expenses. Those who don’t have an emergency fund often need to take out lending solutions, request personal loans, or obtain credit cards to fund their urgent needs.
Creating your emergency fund starts with determining how much you want to set aside. You may need to save three to six months’ worth of living costs so that you have a suitable amount of funds to finance unpredicted expenses or immediate bills.
If you aren’t very self-organized, you may make an automated system to add a portion of your monthly income to the emergency fund on a regular basis. Creating a separate bank checking account can help you achieve this goal.
4. Set Aside Funds for Your Retirement
Even if you are in your 20s or 30s, you need to start thinking about your comfortable retirement. The earlier you start saving for this goal, the better your financial stability will be. There is no one-size-fits-all answer to the sum you need to save each month.
Every consumer defines the portion of their income that is convenient to set aside without hurting your daily life. The target is to have 10 times your current income saved up by your late 60s.
5. Borrow Responsibly
Whether you want to buy a house or finance a big-ticket purchase, you need to borrow smart. Remember that you take full responsibility for the lending solution you request and need to return the full amount on time according to the repayment conditions. You should always calculate the total amount of the loan you are going to withdraw.
If you can’t afford to repay the loan, it’s better to take some time until you save enough funds to cover the needed purchase. Maintaining a good credit rating is essential for every consumer. Paying your debt on time and borrowing responsibly is crucial to improving your credit.
Improving credit scores may take some time. It’s not a quick process although it’s necessary to build your credit to qualify for better terms and lending conditions. The right personal money management can help boost your rating and maintain it at a decent level, so these tips and professional financial advice should be taken into account. The key to building financial security is to be accountable for your finances and borrow only when you urgently need extra money.