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It’s easy to fall into bad habits. You may make an exception for just once but before you realize it, it becomes a routine. You may be stuck to these bad habits that it becomes difficult to break out of hit. This is similar in the case credit habits, once you adopt bad credit habits, you may end up having debts, decrease your credit score and cause more financial problems. Consider these habits that help you improve your credit score.
1. Improve Your Credit Score
Improving your credit score will ensure that you have maintained a good credit score at all times hence you save more for your future. The money you have saved will increase your savings and investments than being used to finance current and future debts.
Some ways can help improve your credit score. First, minimize your credit utilization. This means that you should decrease the amount of revolving debt in relation to your credit limit. Experts advise against using more than anywhere between 35% and 50% of the credit available as it decreases your credit score over time.
Secondly, pay all your bills on time. Fair Isaac Corporation which is the creator of the most utilized credit system highlighted that one’s payment history contributes to the credit score by 35%.
The other way that can help improve your credit score is checking errors on your credit report and correct them immediately. You may get wrong information and incorrect claims due to issues such as human error, computer error and security breach. When corrections are made, your credit score improves significantly.
2. Audit your spending
We shouldn’t only focus on the money coming in but also on the amount of money going out. Spending more money than you make will make you broke at all times. It’s crucial to do an audit of your spending either semi-annually or annually. This way you become aware of how much you spend and identify the specific tasks that consume your money. There are Apps available to assist you to do the auditing but you can simply do it via Excel spreadsheet making it easy to itemize your spending.
With the auditing, you will be aware of where you overspend. That is the spending that doesn’t align with your investment goals, savings, and your income. Additionally, avoid things that could duplicate your expense such as, paying for a landline and everyone in your house has a cell phone.
The more you keep your spending on track the easier it’s to become financially secure and the more you utilize your credit accordingly.
3. Invest 50% of the bonus given
Every time we’re given our bonuses, we make huge plans such as upgrading our homes, vacations and fancy dinner. This is the reason the bonus gets exhausted as fast as they arrive. Rewarding yourself is very important but always think of the reward in two ways. Consider using half of your bonus to reward yourself at the moment and reward yourself in the future with the other half by saving it.
This is a critical way of providing you with the long-term financial security that provides you with peace of mind and boosts your credit score.
4. Consider dividend and capital gains reinvestments
Dividend re-investments are often referred to as DRIP which is the short form for Dividend Reinvestment Program or Dividend Reinvestment Plan. Many Equity investments such as mutual funds, stocks, and ETFs issue dividends. Dividends are the quarterly or monthly recurring payments provided by the specific company or companies depending on the financial performance.
They are often issued as more stock shares or as cash. When given the dividends in the form of cash the investment holder may have the cash automatically reinvested in buying more shares. When dividends are reinvested the ownership of the investor in that investment increases. The increased investment ownership leads to bigger future dividend payouts.
Capital gains are also issued by ETFs and mutual funds that can also be reinvested back automatically. When a fund manager receives profits from selling underlying positions in an ETF or mutual fund that becomes capital gains distributions.
These re-investments will increase your financial stability and eliminates the burden of huge debts that affect your credit habits.
5. Increase your 401(K) contributions
Many companies offer this plan. It’s important to contribute to this plan and the more you can set aside, the better. Nevertheless, ensure that you have contributed enough for the provision of the full employer match. After doing this, have a consistent way of increasing your contributions. For instance, every five months, when you are offered a raise or a bonus, or at the end of the year.
You can set up “auto-increase” online, to allow you to select the percentage of your contributions you want to increase. This helps you keep on track on the contributions you’re making.
This is an efficient way of increasing your savings which increases your financial stability.
6. Establish an emergency fund
This is a crucial element that you shouldn’t ignore. Ensure that an equivalent of three to six months of your living expenses is saved to be used in case of emergencies. Having money to support you and your family in case of a crisis is essential in ensuring that you remain financially secure.
Lack of this emergency fund or failing to reassess it could lead to spending more on your credit than the credit limit. This becomes a bad credit habit regardless of the emergency.
7. Manage your subscriptions
You may have so many subscriptions where some of them are unnecessary or you don’t use them. Since most organizations provide free trials for the services or products they offer, you may end signing up at that moment but forget to cancel it later. You may, therefore, end up paying for a subscription that you don’t utilize. You can do this by going through your credit card bill and mark every change that occurs monthly using a highlighter. This way you will manage your subscriptions by canceling out those that you don’t need and retain those that you need.
8. Break bad habits
There are bad habits that are often adopted and drain finances before it’s even realized. An incredible way of improving your financial habits is breaking bad habits. Some of these bad habits include eating junk food or overeating in general, smoking, excessive drinking, failing to wear a seat belt, or failing to follow rules that lead to penalties. These bad habits are expensive in both short-term and long-term.
Eliminating bad habits ensures that you save more and invest more which is a good habit. Moreover, bad habits contribute heavily to bad credit habits that decrease your financial stability.
Following the above tips isn’t as easy as it’s described above, it requires commitment and self-confidence. If you want to adopt good credit habits you will need to be committed to following the tips given and have the self- confidence to implement them.
The year 2020 isn’t so far away, have these tips in mind and get back on financial track to avoid struggles in the days to come.