HOW TO BUILD A GOOD CREDIT SCORE

In a financial landscape characterized by tighter monetary policies and bankruptcies, your credit score is not just a number. It's an indicator of how vulnerable you may be in a period of great economic uncertainty.?

A bad credit score limits your access to credit, favorable interest rates, and housing options. Not to mention possibly missing out on employment opportunities, difficulty renting or leasing, as well as the sheer emotional toll it can take on an individual.

The good news is that a bad credit score is not a terminal ailment. A proper reality check coupled with strategic planning and some hard work is what it will take to build your credit score from low to “pretty decent for your age.” This article will break down how to build that credit score and get you fit enough to handle the financial turbulence ahead.

1. Take the Emotion Out of It

Ever seen someone walk around in knock off name brand clothes??

Such people are often terrified that people will find them out.?

Not to shame you, but you're acting like those people if you avoid dealing with your credit situation. You are afraid that the situation is worse than you think it is. So you allow your emotions to lead you to sweep the situation under the rug. It's time to stop beating yourself up.

The good news is that no matter how deep a hole you’ve dug yourself into, the situation is not irredeemable. The first step is to stop being afraid to hurt your own feelings and lay your credit situation bare.

2. Examine Your Situation

Now that your emotions are in check and you can think objectively, start understanding and appreciating where you are.

Check Your Credit Report: Start by obtaining a copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion). You can access a free copy once a year from AnnualCreditReport.com. Review it for errors and discrepancies in your account information and check if recent payments were reported accurately.

This is more often than not an indicator that payments from past months and years have also been recorded accurately. Never hesitate to dispute any inaccuracies that will be you taking charge of your finances - as you should.

Know Your Score: Understand the credit score range (typically 300-850) and where your current score falls. This will give you a baseline to start working from as you build that credit score. Knowing your score is part of keeping score so that you can rank yourself as you work on it, brick by brick.

3. Create a Budget

Budgeting is a term and task that exhausts most people, yet it must be done if you are to take control of your finances. Budgeting is simply a tracking system to know where your money will go. If the idea of it weighs you down, let me put it like this: if you don’t track, you don’t care. So because you obviously care, you can't neglect tracking.

Track Your Spending: Keep a close eye on your income and expenses to create a realistic budget. The rule of thumb here is to spend less than you bring in. You should also evaluate the quality of your purchases. Do you honestly need the new iPhone or is that FOMO singing to you again??

There is a rule of thumb for evaluating the quality of your purchases too.

If it's not essential and you typically wouldn’t have the finances to replace it tomorrow, you can’t afford it - so don’t buy it.?

If you struggle with tracking your spending, several apps and online tools can help you with this. You can check out Mint, every dollar or Good Budget. Of Course there are many others.

Prioritize Debt Payments: Allocate a portion of your budget to paying off existing debts, starting with high-interest debts. The sooner your debt is paid off, the more confident you will feel about your finances. The people at Consolidated Credit offer outstanding resources that can help you manage your debt. Their services include teaching you how to read your credit report, debt repayment strategies, and much more.?

4. Pay Bills On Time

Missing payments will dig an enormous hole at the base of the financial bucket you are trying to fill. It will have you taking two steps forward and three back. Use these two strategies to handle pending bills.?

Set Up Payment Reminders: Missing payment due dates can significantly damage your credit. Use tools like calendar reminders or automatic payments to ensure punctuality.?

Consider Automatic Payments: Many lenders and service providers offer auto-pay options to ensure you never miss a payment.

5. Diversify Your Credit Mix

Think of your credit in terms of food and nutrition. Just as you need a combination of proteins, vitamins, and minerals for optimal physical health, you need a mix of credit types for a robust credit profile.?

It demonstrates to lenders that you can responsibly manage various types of credit, which can positively impact your credit score and financial stability.

Consider different types of credit:?A mix of credit types, such as credit cards, installment loans, and a mortgage, can positively affect your credit score.

Use Credit Responsibly: Opening new credit accounts just for the sake of diversifying can lower your score. Only apply for new credit when you need it.

5. Build a Credit History

This is the hard work part of this entire process. Rebuilding that credit will take an extended period of positive debt management, on-time bill payments and proper credit mixing. With each positive financial decision, your credit history gains depth and strength. Lenders and financial institutions will then see that you have a stable and reliable financial foundation

Consider a Secured Credit Card: If you're new to credit or rebuilding, a secured credit card can be a valuable tool to establish a positive credit history.

6. Monitor Your Progress

You are bound to falter and lose track if you don’t track your progress. Again, if you don’t track, you don’t care.?

Regularly Check Your Credit: Keep tabs on your credit score and report regularly to track your progress. Some credit monitoring services offer real-time updates.

Building a good credit score is a marathon, not a sprint. Be patient and stay committed to your financial goals. Start by being honest about your situation by checking credit reports and doing your due diligence. Then ensure you stay on top of your bills, diversify your credit mix, and then do the hard work of rebuilding that credit score. Ensure you continuously monitor to stay on track.?