When I was getting out of debt, I was told numerous times, credit scores mean nothing. However, I learned that that is not exactly true. Your credit score is your financial reputation – plain and simple. When necessary, it shows people how you handle your finances – the good, the bad and the ugly. I agree that your primary focus in your financial life should not be your credit score. However, when you make positive financial decisions, your credit score will reflect that and in essence take care of itself.
In order for you to understand how that happens, you need to understand how the credit score works and what positive, on purpose money decisions you can make to help your score along. So for the next 3 blog posts, we are going to cover the top 3 most important factors of your score and I will share tiny tips that you can do to raise your score simply and easily. When I started focusing on getting out of debt and making positive decisions, my score went up 100 points in just one year – some take longer, some are quicker, but you have to start somewhere. So here we go!
Part 1 – 35% of your score is your payment history. That is over 1/3 on just this one thing. And this is where many of us go way wrong. Anytime you are overextended financially, someone doesn’t get paid. If you don’t have the right health insurance and emergency fund, medical bills don’t get paid and end up in collections. When you go credit card crazy and look up and owe hundreds every month that you don’t have, bills end up in turmoil.
Your payment history is very important to your financial reputation. It shows people whether you have it together or not. People don’t have to look at your bank accounts to know if you have a proper emergency fund – they simply need to look at your credit report. You don’t have to show anyone your budget for them to know if you are doing one or not. It is all reflected in your credit report. Many people fall on hard times and if you are not properly prepared, it will affect your credit history and your financial reputation.
But don’t worry – it is never to late to fix it. The first thing you need to start doing is get on a budget and pay every bill’s minimum payment every month on time or early. If a bill is due on the 20th, pay it no later than the 15th – I mean the payment posts on the 15th. Online payments usually posts within a day, but mailed payments can take 10-20 days to post. Take this into consideration. If you have to start with one, then another, then another and so on. This is better than every single bill being late every single month.
Once you have everything being paid on time or early, begin to work on cleaning up any collection items that may be sitting out there. They are already being reported as not being paid, but once you settle them (even if it is for a written settlement partial) it will show paid and raise your score.
The one thing you need to know about all of the parts of your credit score is that what is done is done. You can’t go back and change it. However, you can make better decisions going forward which will begin to outweigh the bad ones. Trying to do it all can seem very overwhelming which is why I wanted to talk about the top 3 factors so that you can begin there. You may not be able to start paying everything on time immediately if you have struggled with this for a while, but there is no better time than today to sit down, list out all of your bills with their minimums, set up a budget and begin to make it happen. You can do it! I was $200,000 in debt making just $10,000/year with a 560 credit score when I started the process. And look at me now – debt free, making way more than 10 grand, and my score is over 800. It is not impossible and I hope that these small tips that I will be sharing will help you to start the journey now.
Credit is a part of life – we need it for things other than debt in today’s world. It is your financial reputation. And it’s okay if your reputation is scared a little right now. Just make the decision to start over – start today making one better financial decision, pay one bill on time, anything! Today is your day!