You don’t need to be wealthy to have a good credit. You don’t need to spend thousands of dollars on your credit cards each month. How much money you make or what’s in your bank account isn’t a factor. Your credit score isn’t a measurement of wealth or spending, it’s a measurement of responsibility. Your responsibility with credit.
The reason you need to build a credit history (the biggest factor in credit scores) is to showcase this responsibility. The focus should never be to use more credit, but to use it wisely. It means understanding what you can afford, staying within your means, keeping track of what you owe, and paying your bills on time. It means: being organized.
Knowing what you can afford and staying within your means is the first step to being responsible with credit. Whatever your system, you need to take a practical approach to budgeting. That means organizing your income, regular bills, and all of your spending into a single budget. It also means predicting future spending so that you can plan your savings or utilization of credit and forecast future bills as well as current.
Budgeting is all about organization. Incorporating all your finances into a single system can be a lot of work, and the less organized you are, the harder it will be to manage. Perhaps more pressing is that the less organized you are, the more likely you will be to mismanage it. Forgetting or losing important information, along with other problems, can cause you to go over-budget, especially if things are tight. And that’s irresponsible.
Don’t let disorganization ruin your finances. Get yourself together and create a budget.
Paying bills on time
One of the more damaging things for credit ratings, and that which you have the most control over, is missing your monthly credit payments. Even the most frugal of us can put lasting stains on their credit score because disorganization caused them to lose or otherwise fail to pay a bill on time. The mark will go on your credit history and all the responsible spending habits in the world won’t get it removed.
The worst part is, if your finances are well organized, even if you don’t create an elaborate budget-plan, this simply wouldn’t happen. There’s really no excuse.
Maintaining old & unused accounts
One piece of advice you hear all the time for maintaining a good credit score is keeping old accounts open even if you don’t use them. The reason is: an old credit account and all it’s history, good or bad, will typically removed from your credit report about 10 years after the account is closed. The problem is, this advice is probably not a very good idea for disorganized people.
Old accounts can be a liability if you don’t monitor them on a regular basis. Terms could change, annual or other fees could be charged and before you know it, you’re paying late fees and interest on an account you don’t even use anymore. Worse yet, somebody else could get a hold of the account and start using it without your knowledge.
Not only could you end up owing money for something that could have been avoided by better organization, but now you also have a permanent (or very difficult to remove) stain on your credit history. It’s a story that’s probably more common than you think.
Goal setting & financial planning
One of the keys to achieving a good credit score is the type of credit you have. Not just credit cards, but things like: student loans, mortgages, car loans, home equity loans, etc. And unlike credit cards, these are things that require a certain level of financial planning. If you ever want to buy a home, a new car, or go to college (unless you get a full scholarship) you need a plan. An assessment of your current situation, deciding what you can afford, and then sitting down and figuring out how much it’s going to cost and how you are going to finance it. Including any savings or down payment that might be required.
On the flip side, those who tend to live paycheck to paycheck and don’t set goals, plan, or otherwise save for the future either can’t do a lot of what they want to do or they end up using credit as a way to supplement their already fully stretched lifestyle. Then the bills start adding up. Next thing they know, they’re maxed out, behind on payments, in debt up to their ears, and their credit is ruined.
It’s another common tale. And you simply can’t adequately plan your finances if you’re disorganized.
There are obvious advantages to being well organized with your finances. Spending the time to get it right will mean spending less time on it overall, you’ll avoid financial disasters, make your money go further, and set yourself up to be more responsible with money, especially credit.