A step-by-step guide to improving your credit score
Having a bad credit score is not permanent and it is nothing to be ashamed of. It can make your life more difficult, however, so today we are going to talk you through a step-by-step plan to improve your credit score in a year.
Step 1: Learn your credit score
Before you can improve your credit score you need to know what it is and you need to understand why your credit score is the way it is.
You can find out your credit score by visiting one of the independent credit tracking websites. These have no relation to the government or any bank. They are private companies.
If you are struggling to pick which company to use, try going with the company that your bank uses to check their loan applications.
When you look up your credit score you will also be able to see your credit history and you will get an understanding of what events have affected your credit score.
Step 2: Understand your spending habits
Next, it’s time to look at your spending habits. You want to understand where your money is going. You should look at how much you are spending on your bills, on your loan repayments, on food, and on other necessities.
After that, you should look at the other things you are spending your money on. Are there any categories that you can cut down or cut out completely? You want to be able to set some money aside to pay off your loans and to save each month. Having strong money habits is important.
Step 3: Create a budget and financial goals
Now, you want to set yourself some financial goals and make a budget that will help you to achieve those goals.
Your goals could be anything from boosting your credit score by 200 in the next two years to being debt-free by the end of December. Once you know what you want to do, it’s time to change your spending so you have the money to do that.
In the step before, you will have already done most of this work, you will know where you are overspending, now it’s time to commit to improving your finances.
Step 4: Start paying off your debts
One of the best ways you can improve your credit score is to make your monthly debt repayments on time and pay off your debts early if you can.
You will need to make paying off your debts and household bills a priority for your spending each month. If you have taken any small personal loans, it is necessary to repay the same on time.
You could make things easier for yourself by scheduling your repayments and bills to leave your account the day after you get paid. That way, you don’t have to worry about overspending before the end of the month.
You should focus on paying off your smallest debts first.
Step 5: Consolidate your debts if you need to
If you have more than 3 different debts to your name, you might find that your monthly repayments and the interest you have to pay on each individual debt are eating into your budget significantly.
If you have multiple debts then you may want to consider consolidating them. This could benefit you by reducing the amount of interest you are paying each month and the total sum of the repayments you are making.
If you are paying less in interest and repayment fees each month then you are a lot less likely to miss a repayment.
Step 6: Take out a credit building loan
If you do not have any loans out at the moment and you are looking for a way to improve your credit score then you should consider taking one out.
Certain types of small loans are great for building your credit score – these include phone contracts and small personal installment loans.
A loan like CreditNinja’s personal loans for bad credit can be taken out and paid back over a year or two. Every time that you make a payment on time, you are showing your bank that you are trustworthy and you can be trusted with money in the future.
Step 7: Start building an emergency fund
While building an emergency fund won’t directly improve your credit score, it is important to start building one as soon as you can. Why? Because having an emergency fund to fall back on can prevent you from having to take out more loans or loans from loan sharks if you are desperate for money.
Everyone, even people with great credit should have an emergency fund of at least three months’ pay. Emergency funds can help you out if you lose your job and need to carry on paying rent, or if you need to pay emergency medical bills.