When I was 19 I had horrible credit. I had trouble renting an apartment and later buying a house. Flash forward just a few years later. I was buying a car and the salesman said, “Did you realize that you are in the top 3% of credit scores?” How did things change for me so drastically? Let me tell you my secrets.
Improving your score is very possible. Like proper sun, good soil and the right amount of water for a dying plant, you will need patience and discipline for your credit score.
Chapter 1. Own it.
Please don’t look for the easy way out of this. Don’t look for your rich uncle Stanley to give you a $3,000 gift. It is your debt. It is your responsibility. One way or another we all get into financial difficulty. The first step is “owning it” to control it. By taking control, you learn to control other aspects of your life, and you are less likely to get in that situation again.
Chapter 2. Be realistic.
Depending on how much debt there is, this may take months or even years. But you will get there if you are disciplined. The important thing to remember is as you are getting there, things will improve. Interest rates will go down on your existing debt, and places will be more likely to loan you money to pay off higher interest rates.
Chapter 3. Anyone can have great credit.
Don’t blame it on a low-paying income. You can be rich and have bad credit, or you can make a low-paying wage and have great credit. My mom was a single mother who was also a school teacher. However she was very careful with her money. She was able to retire at 57 and she now has a vacation home in Belize where she spends four months out of the year.
Chapter 4. Start a budget.
I firmly believe that budgets are the difference between rich and poor. Just a simple budget will show you where the money is going, and keep you on track so that you do not overspend. Just going on a budget for 1-3 months can save you thousands. Please see my article “The Difference between rich and poor: budgeting.”
Chapter 5. Avoid the “backlash.”
Some people are so concerned to get out of debt that they forget to have fun. You must have fun. You must reward yourself every once-in-a-while. If not, you will go out and blow more money. We are human – that is what we do.
Chapter 6. Pay more than the minimum.
It is important to remember to pay more than the minimum required for a credit card statement. The minimum amount is usually just the amount of interest you owe.
Chapter 7. Pay all bills before they are due.
Know when your bills are due and pay them on time. As you go into months and years of on-time payments, your credit score will increase significantly. It just takes one time of being over 30 days late on your mortgage for your credit score to drop over 80 points. It takes three years to get it back up there to where it was.
Chapter 8. Read your credit card statements.
Oftentimes you will shove the credit card statement away because you are hiding it from a spouse, or because you don’t want to deal with it. It is especially important to read the statement to cut out things you don’t need. Are you being charged a gym membership that you do not use? Did you forget to cancel the online movie delivery that you never have time for?
Envision a future with a better credit rating: less fighting with your spouse, more vacations and less stress. Know how you will feel when you took ownership of your life, and responsibility for your decisions. Finally, know that you were the one who taught your children the value of saving and budgets, and help them to lead a life with minimal debt and maximum future!
Having a tangible savings account while your money grows will help you build a steady nest egg. When you apply for the lower interest loan, potential lenders will like to see funds held in a savings account or money market account.