Budgeting might as well be a dirty word to most Americans, yet for those who have a financial plan in place their ability to improve their credit scores is amazing. While there’s no listing on your credit reports for whether you’re planning ahead with your finances or not, it’s usually obvious to lenders that you’re being responsible with your money.
Not running up your credit card debt has its advantages. Not having to involve yourself with debt relief or deal with harassing phone calls. Plus if you’re budgeting, you can avoid falling into a similar situation that’ll require credit repair.
Budget and Save
The primary purpose of budgeting is to make sure that you are not living beyond your means. But in order to put a budget to good use, you need to make sure that you are saving money too. Generally, savings is used for retirement, or the purchase of a home, however having money for a potential financial disaster is just as important.
Consumers that are living paycheck-to-paycheck would be devastated if they were to lose their job or have to add another expense because of a family tragedy. These things happen to everybody. If you’ve put money away for a rainy day, then it may not be such a financial hardship.
Don’t Miss Payments
If you’re budgeting properly, then you should never miss a monthly payment on either a credit card or installment loan that you may have. Even if something happens to your income or expenses for a brief period, the fact that you’ve been squirreling money away will get you through that time without a payment slip up.
Just one missed payment can lower your credit score 50 points or more. That’s why it’s so important to make sure that you never miss a payment. A missed payment can lead to higher interest rates, which means paying more money each month, which leads to less money for savings. It’s a domino effect that can be completely avoided with suitable planning.
Pay Balances Down
If your credit cards are maxed out you’re walking a very fine line between building positive credit and being completely overwhelmed by your debts. Keep your balances as low as possible. Use your credit cards as a convenience, not as a necessity.
If a financial crisis does happen, you’ll be glad that your credit card balances have been kept low. You may need those credit cards for a few weeks to get you through this rough patch. If they’re maxed out though, not only is it going to be difficult to pay off, but you’ll find that you may have absolutely no money on hand.
Your balances also have an impact on your credit scores. Keeping them at less than twenty percent of their balances will almost certainly cause your score to creep upwards. While having high balances will usually do the exact opposite.
The Bottom Line
Too many people have no desire to break down their finances and really budget. But if you’re able to stick to it and avoid impulse purchases, your ability to increase you credit score is significantly higher than someone who isn’t planning ahead.
So many people think that credit repair is going to be the answer to their credit woes when being financially responsible is by far the better, safer approach. These are steps that need to be part of your everyday life; however, when you’re paying the lowest interest rates in the industry and you have a credit score that’s in the 800s, you’ll be glad you took the time to budget.
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