Having less-than-perfect credit can evoke a host of emotions, and it can certainly make life difficult from time to time. If you are surprised by your credit score and you want to get back on track, the five tips below can make a huge difference in your overall financial situation.
#1 – Obtain a Copy of Your Credit Report
The very first thing you need to do is obtain your recent credit report. TransUnion and Equifax are the two prominent credit reporting agencies in Canada, and you can request a free report from both companies in writing. Once you receive it, pore over it carefully and look for anything out of place. Mistakes can and often do occur on credit reports, particularly when past creditors fail to report the full repayment of a debt. What’s more, you may find things that you forgot about over time. Once you take care of these, your score will improve.
#2 – Pay More than the Minimum Payment
If you have credit cards, department store cards, auto loans, and other forms of consumer debt, you should be sure to make more than just the minimum payment on these. For example, if you have $2000 in debt with a credit card and your minimum monthly payment is $75, consider how much of that $75 is being applied to the principle debt and how much is going to interest. If more of that money goes to interest than the debt, you need to make a larger monthly payment to whittle down the debt.
#3 – Consolidate Your Debt
If you have several small bad credit loans or credit card balances with high interest rates, it may be in your best interest to consolidate these debts with a single lower-interest loan. Although it may negatively impact your credit at first since credit agencies prefer to see you manage multiple lines of credit than consolidate them, it can actually save your credit in the long run – especially if you are struggling to make the minimum payments each month.
#4 – Track Your Spending
For a period of one month, start a ledger and keep track of every single penny you spend. This should include all of your monthly bills, including your cellphone and cable, and it should also include things like the coffee you buy each morning or the pack of gum you purchase on a whim at the grocery store. Then, at the end of the month, go back and categorize things. You might be surprised to learn how much of your money goes to frivolous purchases.
#5 – Start a Savings Account
Once you realize how much money you spend on things you really do not need, consider skipping those impulse buys and instead putting that money into a savings account. When you have a solid nest egg, you are prepared in the event of an emergency – and those funds actually make money over time, too. This means that instead of taking out a high-interest payday loan to get your car fixed, you can use your own funds and save quite a bit of money.
As you can see, improving your financial situation is not impossible. For the most part, it is all about tracking your spending, understanding your debt, and consolidating your debt where necessary. When you can reduce your debt and set some money aside at the same time, you will feel better about your financial situation.