It’s been months since you’ve tried improving your credit score but had little success. And since you’re planning to make large purchases soon, you start feeling hopeless.
The problem is you don’t know where to start. With too many resources available, you become paralyzed with fear. But you know you can’t sit still forever. So what’s your next step?
To learn from others who’ve already experienced success.
Take my case, for example, my current credit score is 750+, but this wasn’t always the case. At one point I had no credit and lost over 100 points. Through trial and error, plus learning from others I’ve learned which tactics work.
You don’t need complicated strategies, you only need a few that work. The tactics provided in this list are the same ones I’ve used to increase my credit score. While your credit score won’t improve overnight, it’ll improve quicker than most.
Here are 10 tactics you can use to finally improve your credit score:
1. Revise for any errors
Before you attempt to improve your credit score, check where you stand. Pull a free credit credit report and ensure that all your information is accurate. For example, check for misspellings, wrong addresses and accounts not belonging to you.
If there’s any bad information, contact the credit reporting company. To avoid any prolonged issues, aim to check your credit at least once per year. You’re entitled by Federal law to 1 free credit report from all 3 credit reporting agencies.
Download Credit Karma, or Credit Sesame to track your credit score. This will help you stay motivated as you’re changing bad habits to improve your credit score.
2. Stop depending on credit
A major reason for having bad credit is due to carrying several credit balances. Instead, focus on paying down all your credit cards and only use one. Save money by consolidating all your credit card balances into a 0% interest credit card.
Once you’ve consolidated all or most of your credit card debt, make more than the minimum payment. Why? Because it can take years for you to pay off those balances making the smallest payment.
It can feel overwhelming keeping track of many credit cards and other expenses. Fortunately, a simple solution is to use apps like Mint to better track your cashflow.
3. Say no to new credit cards
Ironically, the better your credit score is, the more credit offers you’ll receive. But this doesn’t mean that you should open dozens of new credit cards. Limit yourself to only have 1 to 4 credit cards.
If you find that you already have more than 4, focus on eliminating ones you don’t use or have an annual fee. Many companies and stores will try to convince you to open new credit cards with a one-time cash bonus. Don’t fall for it.
4. Leave your bills on autopilot
Because you’re human, you’re bound to be late on payments at some point. A great way to avoid being late is by setting up automatic payments for your bills. Nowadays, most large banks have a “bill pay” feature that allows you to set up recurring payments.
Review your credit billing history and write down bill due dates on a separate sheet of paper. Be sure to have a good understanding of your cash flow to know how much money you’ll have left over each month. Use the remaining amount to make extra credit card payments.
Stay motivated by setting a deadline for when you’d like to be credit card debt free. Then break down your entire credit card balance by month. For example, if you’d like to be debt free in 16 months with a $5,000 credit card balance, make a $313 payment each month ($5,000/16).
Make sure to pick a date that’s attainable and one with payments you’ll be able to afford. It’s better to pay a lesser amount if you’ll be consistent.
5. Make your bills adapt to you
Everyone’s pay cycle is different, so adjust your bill’s due date to a date convenient for you. If your bill is due on the 1st of the month but you get paid on the 7th, change accordingly.
Sometimes changing your due date is too much of hassle or not possible. In this case, consider using your credit card to make your payments. But, as soon as these payments post to your credit card, be sure to pay them off.
6. Be wary of excessive credit
Keep your credit utilization below 30%. Using more credit gives the impression to companies that you’re struggling financially. Vintagesscore recommends using no more than 30% of your credit utilization.
What’s your credit utilization? Divide your total outstanding debt by your total credit. For example, if you had $3,000 in outstanding debt with a $10,000 credit limit, your credit utilization is 30%. Now review all your credit cards and calculate your credit utilization.
So when do you use your credit cards? Only to make purchases you’ll be able to pay off either immediately or within a month.
Stop depending on your credit card to make daily purchases and use your debit card instead. You’ll be less likely to make impulsive purchases and buy only what you can afford. The best part is you’ll start breaking the bad habits that got you a bad credit score in the first place.
7. Don’t abuse credit inquiries
Be wary of hard credit inquiries. These types of inquiries can bring down your credit score a few points. A few points may not sound like much, but they add up.
Hard credit inquiries are necessary for the different stages in your life but you’ll need to be strategic for when to use them.
Here are some examples of hard inquiries:
- Auto loan application
- Mortgage application
- Student loan application
- Personal loan application
- Apartment application
Plan ahead for big purchases. This way you’ll avoid running many hard inquiries against your credit all at once. The good news is that big purchases aren’t made often, so you’ll have time to prepare.
Set a timeline for when you’d like to make large purchases to know if your credit score is in good standing.
8. Become an authorized user
Start building credit by becoming an authorized user in someone else’s account. As an authorized user, you’ll be able to make purchases with your own credit card. But the owner will still be responsible to make payments on time.
It’ll be challenging to find someone who’d be willing to add you as an authorized user to their account. So start by asking a close relative or friend. Once added, it’s a great way to build creditworthiness over time, so be persistent.
9. Praise your credit history
Don’t close good standing credit cards. Good standing credit cards show lenders you’ve been able to make payments on time for an extended period.
Instead, if you decide to no longer use a credit card, leave it home somewhere out of sight.
Do close credit cards that are charging you annual fees or have a short history. Be sure to do this during a period you won’t be making large purchases.
10. Conquer goals with patience
The truth is building your credit score won’t be easy, but it’s well worth the effort. To stay motivated, write down your main reason for wanting to improve your credit score.
For example, if you want to buy a house, set a concrete date to work towards to. Then start researching what credit score you’ll need to buy your home. From here, break down your goal into daily actionable steps.
A sample month can look like this:
- Week 1: Leave credit card at home
- Week 2: Call banks to inquire about ideal credit score to have
- Week 3: Create a pay off date for your credit card with the lowest balance
- Week 4: Save $10 to make a principal payment towards your credit card
Consistency is key. It’s best to start with small goals and make consistent progress. Once you start seeing success aim for bigger goals.
“Most people overestimate what they can do in a day, and underestimate what they can do in a month.” – Matthew Kelly
Make your dream purchases effortlessly
Imagine waking up to a buzzing noise. It’s your smartphone notifying you that your credit score is now 700. You smile, grab your coffee, and start your morning feeling invincible.
It wasn’t easy but with hard work and discipline, you were able to improve your credit score.
Best of all, your finances are now better than ever. You have a budget and stick to it. Amazing isn’t it?
You now have 10 proven strategies to boost your credit score. Try each tactic but remember to have patience. Increasing your credit score won’t happen overnight. But you’ll form life-changing habits along the way.
What are you waiting for? Go get em’ tiger.
Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?
In this article, we will explore ways to set financial goals and actually meet them with ease.
Table of Contents
4 Steps to Setting Financial Goals
Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.
1. Be Clear About the Objectives
Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.
It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.
Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.
2. Keep Goals Realistic
It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.
It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.
3. Account for Inflation
Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.
Therefore, account for inflation whenever you are putting a monetary value to a financial objective that is far into the future.
For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.
4. Short Term Vs Long Term
As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.
By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.
How to Achieve Your Financial Goals
Whenever we talk about chasing any financial goal, it is usually a two-step process:
- Ensuring healthy savings
- Making smart investments
You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.
Ensuring Healthy Savings
Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.
This is the focal point from where you start your journey of achieving financial goals.
1. Track Expenses
The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.
Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.
If you’re not sure where to start when tracking expenses, this article may be able to help.
2. Pay Yourself First
Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!
Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.
The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.
Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.
3. Make a Plan and Vow to Stick With It
Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized
Nowadays, several money management apps can help you do this automatically.
At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.
Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.
You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.
4. Make Savings a Habit and Not a Goal
In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.
Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:
- Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
- If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
- If you go shopping, always look out for coupons and see where can you get the best deal.
The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.
5. Talk About It
Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.
Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.
6. Maintain a Journal
For some people, writing helps a great deal in making sure that they achieve what they plan.
If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.
When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.
Making Smart Investments
Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.
1. Consult a Financial Advisor
Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.
Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.
2. Choose Your Investment Instrument Wisely
Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.
Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference.
As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.
3. Compounding Is the Eighth Wonder
Einstein once remarked about compounding:
“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”
Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.
Start saving early so that time is on your side to help you bear the fruits of compounding.
4. Measure, Measure, Measure
All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.
If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.
Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!
The Bottom Line
Managing your extra money to achieve your short and long-term financial goals
and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.