Your credit score is primarily based on how you use credit products like loans and credit cards. But, how you handle your finances in general impacts your credit score, too. If you have a bad money habits, chances are that will be reflected in your credit score.
Living within your means. Living within your means is key to affording your bills, which has a major impact on your credit score. Living outside your means puts you at risk for missing payments on your credit cards, loans, and other monthly bills. Payment history is 35% of your credit score so falling behind on your payments can hurt tremendously.
Use a budget to help figure out what you can afford to spend. Track your spending between paychecks to be sure you’re staying on track. Reign in your spending if you’re running out of money and you still have a few days before your next paycheck.
Prioritizing needs above wants. One way to keep your spending in check is to make sure you’re taking care of your needs first. If you spend all your money on things you want, there’s nothing left to pay the important bills – the ones that will affect your credit rating. Plus, indulging in too many of your wants tempts you to create debt, possibly more than you can afford.
Keeping your finances organized. It’s hard to make your payments on time if your bills and other financial documents are disorganized. Come up with a system for keeping up with your bills and bank statements. For example, you might use a bill payment calendar to keep up with your monthly bills, payment amounts, and due dates. Then, refer to the calendar frequently throughout the month to be sure you’re on track with your payments.
Paying your bills on time. Payment history is a significant part of your credit score, so paying your bills on time is important. If you’ve checked your credit report, you probably know that not all your bills are listed on your credit report.
Credit cards and loans are regularly reported, but other regular monthly bills like your electric service, cable, and insurance payments aren’t included on your credit report. But, just because these aren’t regularly reported to the credit bureaus doesn’t mean you should get comfortable with skipping them.
Habits are contagious. If you’re missing payments on some bills, you’re prone to missing payments on other bills, ones that are listed on your credit report. Not only that, you’ll incur expensive late fees that increase your monthly payment and make it harder to live within your means. Getting caught up could put a strain on your finances that causes you to miss more important bills. And, if your payments get too far behind your account could go into default and in that situation it could be listed on your credit report.
Researching financial products. Don’t choose financial accounts on a whim. That includes checking and savings accounts, investments, credit cards, and loans. For example, a credit card with hidden fees and high interest rates could be a struggle to repay. Even your checking account can indirectly impact your credit score since that account holds the money you use to pay your bills.
Fix mistakes sooner rather than later. It’s may not always make the right moves. Though you should strive to pay on time every month and stay out of debt, mistakes do happen. Lessen the damage from financial mistakes by taking care of them immediately. If you miss a payment by a couple of days, make it up before the next due date rolls around. With a credit card or loan, the late payment will be reported to the credit bureaus by the time your next due date comes. If you overdraft your checking account, get back in the positive as soon as possible, especially if you have some payments set up for autodraft.
Spend wisely. If you're irresponsible in any area of your finances, it'll be tougher to keep your credit score in tact.