Credit & Budgeting Guide 101

Budgeting Part One

"What's in it for me?" This is the question many people ask themselves when
considering budgeting. Questions like, "Can I really buy a house?" or "Can I
truly get out of debt?" But for someone like myself, having a budget has
helped me achieve many of my goals and dreams. It's meant having money
saved in the bank, being debt-free, earning my full paycheck, and having the
freedom to use my savings as I please. And there's also the potential of
leaving a financial legacy for my future children, which I believe is something
many of us aim for.

The truth is, managing money is a skill that most of us aren't naturally good
at. We probably didn't learn it from our parents or in school. Yet, we expect
ourselves and others to know how to handle money as soon as we start
earning or using credit cards. But just like we need instruction and tests to
get a driver's license, managing money requires guidance too.

In part one of this guide we are going to explore the 7 steps to managing
your money:

1. Organizing your finances

2. Setting financial goals based on your values
3. Keeping track of your income and expenses
4. Planning for irregular expenses
5. Dealing with setbacks without causing financial harm
6. Building up savings
7. Planning around your pay checks
Step 1: Organizing Your Finances

To start your journey towards financial success, here are some tips for
getting organized. You'll feel much better once you have a system in place.
When you're in control of your finances, you'll feel more in control of your
life!

Supplies to create an Office-in-a-Box ( Can also create folders on

computer):

• File Box – plastic, cardboard, or accordion style or use a filing cabinet

• File folders

• Labels

• Felt pen

Create a file folder for each of the following categories:

• Income

• Bank information

• Regular bills (hydro, cellphone,etc.)

• Income taxes

• Home (and other properties)

• Insurance (life, disability, health, critical illness, home, car)

• Vehicles

• Credit products (credit cards, lines of credit, loans)

• Retirement & investment accounts

• Warranties

• Wills and estate

• Legal documents

• Two “bills” folders – one labelled “Bills 1-15” and the other labelled “Bills
16-31”

Keeping things organized:

• Sort through your paperwork and organize your documents into the folders
listed above.

• Make a weekly date with your money. Pay your bills in the same place each
week so that
you have everything you need on hand.

• Annual clean up. Go through your office in a box and shred bills and
receipts that you no

longer require for budgeting or tax purposes.

Step 2: Discovering Your Financial Values and Setting SMART Goals

Now, let's shift our focus and take some time to contemplate what money
represents to you. This introspection is crucial because once you grasp the
role money plays in your life, you can make choices that align with your
values. After all, we allocate money to the things that hold significance for
us.

You may have multiple values associated with money. For instance, it might
provide both a sense of safety and security, as well as the freedom to pursue
your desires. Additionally, these values can evolve over time or in response
to life events such as starting a family.

Dream Big! What Are Your Goals?

Now that you have a deeper understanding of the significance of money in

your life, it's time to contemplate what you want to achieve with your
financial resources. Setting goals can provide you with direction, purpose,
and the drive to pursue your aspirations.

What are your true desires?

 Building up savings?
 Purchasing a car?
  Going on a family trip?
 Owning your own home?
 Enjoying a dinner out with your spouse or partner?
Write down three things you want to do with your money:

I Want ____________________________________________________

I want to save up for a down payment on a house.

I want to set aside funds for a dream vacation to Europe.

I want to establish an emergency fund to cover unexpected expenses.

Good money management begins with defining goals. They can be

ambitious or straightforward, but what matters is that they are your own and
hold significance to you.

Let's make these goals SMART:

1. Specific: Clearly define each goal.

2. Measurable: Set criteria to track progress.
3. Achievable: Ensure the goals are within reach.
4. Relevant: Make sure they align with your values and aspirations.
5. Timed: Establish deadlines for achieving each goal.

Reflecting on the section on values, where we explored the significance of

money in our lives, let's examine how the things you want align with your
values:

For example:

Goal: Saving up for a down payment on a house.

Value alignment: If security and stability are important to you, owning a

home may align with those values.

Goal: Setting aside funds for a dream vacation to Europe.

Value alignment: If experiences and quality time with loved ones are
important to you, this goal may resonate with those values.

Goal: Establishing an emergency fund to cover unexpected expenses.

Value alignment: If being prepared and having peace of mind in times of

uncertainty are priorities, this goal may align with those values.

For instance:

My goal is to save up for a down payment on a house.

I want to achieve it within 24 months.

The total cost of my goal is: $50,000

I will have to set aside $2083/month in order to achieve my goal.

I’m doing this because I value stability and security for my family's future.

I will stay on track by: researching potential homes regularly; setting up

automatic transfers to a dedicated savings account; seeking advice from a
financial advisor.

By aligning your goals with your values, you're more likely to stay motivated
and committed to achieving them. Additionally, implementing strategies to
stay on track, such as setting up automatic transfers and visual reminders,
can help you reach your goals effectively.
Short-term (up to 1 year):

Save $5,000 for an emergency fund.

Take a weekend getaway with family to a nearby beach destination.

Pay off credit card debt totaling $2,000.

Medium-term (1-5 years):

Save $20,000 for a down payment on a home.

Upgrade to a newer, more reliable vehicle.

Start investing in a retirement account and contribute regularly.

Long-term (5+ years):

Purchase a home in a desirable neighborhood.

Achieve financial independence and retire comfortably.

Establish a college fund for children's education.

It's important to review these goals regularly, updating and adjusting them
as needed to ensure they remain relevant and aligned with your values and
aspirations. Additionally, don't hesitate to create new goals as circumstances
change and opportunities arise. Remember, goals serve as a compass for
guiding your financial decisions, so it's essential to always be working
towards at least one goal.

Step 3: Understanding the Numbers

When it comes to crafting your budget, it's essential to grasp key financial
figures such as your net income (what you earn after taxes and deductions)
and your monthly expenses.

Let's begin with your income. Input all of your income details into the budget
table.

Now, let's delve into your monthly expenses. Have you ever wondered,
"Where did all my money go this month?" Does it feel like your funds vanish
mysteriously? To uncover the truth about your spending habits, it's crucial to
track your expenses.

Expense tracking is vital because it:

Helps identify areas where you can save money (ka-ching!).

Reveals where your money is truly being spent.

Forms the initial step in crafting a realistic spending plan (we'll tackle that
later).

You might have thought to yourself: "This seems like too much
effort! I don't need to do this. I already know where my money goes.
It's disheartening!"

However, budgets aren't typically sabotaged by major purchases (thankfully,

your hot water heater doesn't need replacing monthly!). Instead, they're
often derailed by small, unnoticed expenses like daily coffees, lunch
purchases, or drive-thru meals.

Find a budget tracking method that suits your preferences (whether it's pen
and paper, a smartphone app, collecting receipts, or using a spreadsheet)
and give it a try for a few months. If it feels overwhelming, start by tracking a
few key spending categories, such as dining out, entertainment, and
groceries.

Be sure to schedule regular check-ins to review your tracking. Armed with a

clear understanding of your spending patterns, you can make changes that
align with your financial goals!

Here are some tricks to make tracking a bit easier and to help save time (and
money!):

Utilize an Expense Tracking Booklet

Carrying a small booklet with you in your purse or pocket can simplify
expense tracking. Whenever you spend money, simply jot down the
transaction under the appropriate labeled categories in your tracker. Explore
our online and printable tracker at nomoredebts.org/tracker.

Request Receipts

Ensure you obtain receipts for all your transactions. Use envelopes labeled
with various expense categories like gas, groceries, utilities, entertainment,
etc. Place the receipts in their respective envelopes and calculate the totals
at the end of each week and month to gain insights into your spending
habits.

Computer Software

For those with busy lifestyles, tracking expenses using computer software or
a pre-made online expense tracker may be more convenient. Some systems
even allow you to text or email your expenses from your smartphone to your
home computer.

Utilize a Smartphone App

There's a plethora of smartphone apps available for download, but they

generally fall into two categories. The first requires you to manually input all
your expenses, while the second type allows the app to gather information
from your bank and credit card transactions, compiling it for you.

However, there are drawbacks to the second system. It doesn't track cash
transactions, and it's crucial to read the fine print as it may affect your bank
contract if you ever fall victim to fraud.

Planning Your Budget!

It's as simple as 1, 2, 3.

1. Note down the income you typically earn or receive each month.
2. List your expenses, including fixed, variable, and savings. Remember
to account for seasonal and irregular expenses as well (refer to the
guidance below if needed).
 3. Deduct your expenses from your income. If you have a shortfall, it's
time to reassess your income, expenses, or perhaps both.
Step 4: Dealing with Irregular and Seasonal Expenses

Handling irregular and seasonal expenses can be stress-free with the

following steps:

Step 1: Open a dedicated savings account solely for irregular and seasonal
expenses.

Step 2: Calculate the total cost of all irregular and seasonal expenses for the
year (indicated by asterisks on your budget).

Step 3: Divide the total annual amount by the number of pay check you
receive per year (12, 24, or 26).

Step 4: Transfer the calculated amount into your irregular and seasonal
savings account with each paycheck.

Step 5: When faced with an irregular or seasonal expense, withdraw the

necessary funds from this savings account and pay the bill. Keep track of
your transactions.

For instance, if your yearly irregular and seasonal expenses total $2400, you
could save:

$200 per month if you're paid monthly,

$100 per pay check if you're paid bi-monthly, or

$93 per pay check if you're paid bi-weekly.

Maintain a list of your irregular and seasonal expenses to update for the
following year. This allows you to anticipate upcoming events and associated
expenses, such as family weddings or baby showers, and plan accordingly in
the months ahead.

Step 5: Bumped, but not Bruised - Planning for the Unexpected

We all encounter unexpected financial challenges, ranging from minor

inconveniences to serious emergencies or even catastrophic events. These
bumps in the road can cause significant stress if we're not adequately
prepared.

As you set yourself up for success, consider asking yourself the following
questions:

1. Reflecting on past experiences, how have I handled financial crises?

2. How effective has that coping strategy been for me from a financial
standpoint?
3. What proactive steps can I take today to prevent or mitigate future
financial crises?

With some pre-planning and strategic thinking, here are a few strategies to
help navigate unexpected financial challenges:

Step 6: Creating Savings

How? Why?

Let's break it down:

1. Decide what you want to save for, whether it's irregular and seasonal
expenses, emergencies, specific goals, etc.
2. Open a savings account or multiple accounts, but be mindful of bank
fees.
3. Create a plan to contribute money into your savings on a regular basis.
 4. Automate your savings process to eliminate the need for manual
intervention.

Here are some examples of savings strategies:

 40-40-20 Rule: Allocate 40% of a lump sum of money to top up your

savings, 40% to pay down debt, and the remaining 20% for guilt-free
spending.
 52 Week Money Challenge: Start by saving $1 in week 1, $2 in week 2,
and so on, until you reach week 52, where you'll save $52, totaling
$1378.
 Pop Bottle Challenge: Save enough dimes to fill a 2L pop bottle, which
should amount to approximately $500 when full.
 Spare Change Challenge: Save all your spare change or $5 bills.
 Make at Home: Instead of buying coffee or lunch, prepare your own at
home and deposit what you would have spent into your savings.
 Clean Sweep: Sell items you no longer need and add the proceeds to
your savings.

While saving money, it's crucial to protect your savings from temptations like
impulse purchases. Here are some strategies:

 Limit access to your savings account from your debit card.

 Set up automatic transfers to an account with limited access.
 Make it necessary to visit a branch to withdraw money from your
savings.
 Establish a joint account requiring both signatures for withdrawals.
 Maintain clarity on your goals and reasons for saving to resist
temptation.

Step 7: Paycheck Planning

Utilize the Pay check plan to align your income and expenses with your
budget:

1. Revisit your budget and categorize your expenses:

 a. Fixed expenses (F): These are consistent monthly amounts due on the
same date each month, such as rent/mortgage, insurance, and bank fees.

b. Cash/Variable expenses (C): These are monthly expenses that may

fluctuate in amount and occur on various dates, such as gas, groceries, and
entertainment.

c. Savings expenses (S): Reserved funds for future spending,

encompassing irregular/seasonal expenses, emergency funds, and goal-
setting funds.

2. Calculate the total of your fixed expenses. If you receive paychecks semi-
monthly or bi-weekly, divide this total by 2. This represents the portion of
each paycheck needed to cover your monthly obligations. Deposit this
amount into a dedicated account for fixed expenses, where automatic
deductions are made. Avoid using this account for day-to-day transactions.

3. Repeat this process for all your savings expenses.

4. Total your cash/variable expenses and divide by 4 to establish a weekly

allocation. Alternatively, divide by 2 to cover expenses for two weeks. You
can choose to withdraw this amount as cash or maintain it in a separate
account from your fixed expenses. Bear in mind that once this money is
spent, it's unavailable until your next paycheck(weekly, bi-weekly, semi-
monthly, or monthly).

Adjusting to this money management approach may take time, but the
benefits are significant. Stay committed, and you'll witness positive
outcomes over time.

Congratulations!

You've successfully completed the 7 steps to effectively managing your

money! Here are some key points to remember before we conclude:
 There's no one-size-fits-all approach to budgeting. Find what works
best for you, and if it's effective, stick with it. If not, don't hesitate to
try something different.
 Mistakes happen, and that's okay. Learn from them, move forward, and
remember, there's no final exam.
 Household budgeting involves everyone in the family. Take the time to
set goals that align with everyone's needs and desires, even if it
requires negotiation and compromise.
 Don't hesitate to seek help if you feel stuck. Many of us weren't taught
financial management skills growing up, and there's no shame in
seeking guidance. Explore resources like books, blogs, workshops,
webinars, or speak with a credit counselor for additional support. The
more informed you are, the better decisions you can make.
 Credit counseling isn't just for those in financial trouble. Counselors can
assist with budgeting, improving financial literacy, and accessing other
resources to support your financial well-being.
Remember, you are worth the effort!

Credit 101
How you can build your credit and improve your financial health

Introduction

When it comes to managing your finances, few things hold as much

importance as your credit. A positive credit history can save you money
when borrowing for significant purchases like a home or a car, as well as
unforeseen expenses. Conversely, a poor credit score can hinder your ability
to secure loans and increase the cost of borrowing if you do qualify.

The initial step towards establishing good credit is gaining a comprehensive

understanding of how credit works. But where do you begin? This guide aims
to provide you with a detailed overview of credit scores, the significance of
maintaining a healthy score, and the strategies for building and maintaining
a positive credit history.

This section of the guide will cover the following topics:

  Understanding what a credit score is
 Exploring the importance of having a good credit score
 Identifying factors that influence your credit score
 Strategies for improving your credit score
 Steps to establish a credit score if you don't have one yet
 Guidance on how to review your credit reports and scores
 Instructions on disputing errors found in your credit report

What is a Credit Score?

Ever wondered how lenders decide whether to approve your credit

application? Credit scoring is a system used by banks and lenders to assess
your creditworthiness and determine whether to extend you credit. It may
also influence the terms and interest rates offered to you.

A credit score is a three-digit number designed to provide lenders with

insight into how you've handled credit in the past and your likelihood of
repaying debts. It considers factors such as your payment history, the types
and number of accounts you have, the length of your credit history, and
more. Higher scores reflect responsible credit behavior, giving lenders
confidence in your ability to manage new credit effectively.

Credit Score Ranges

Both FICO and VantageScore credit scoring models utilize a credit range from
300 to 850. Although lenders establish their own criteria for acceptable
scores, here's a general breakdown of credit score ranges as defined by
Equifax:

 Poor: 300 - 579

 Fair: 580 - 669
 Good: 670 - 739
 Very Good: 740 - 799
 Excellent: 800 – 850
Where does this information come from?
Credit reporting agencies, also known as credit bureaus, store the
information used to determine your credit score. In the United States, the
three main credit reporting agencies are Experian, TransUnion, and Equifax.
These agencies collect data on your credit usage to generate your credit
score.

While lenders are not obligated to report credit information to credit

reporting agencies, many choose to do so because it aids in making informed
decisions about risk. It's essential to understand that consumers do not need
to provide explicit permission for lenders to report this information.

What is the Value of Good Credit?

Your credit score holds significant sway over your financial life. A favorable
credit score can substantially lower borrowing costs over your lifetime and
position you better to achieve milestones like purchasing a home, funding
education, or launching a business.

Lenders rely on credit scores to assess your eligibility for loans or credit
cards and to establish the interest rates you qualify for. Additionally,
companies may use your credit scores to decide on renting to you, offering
you employment, or setting insurance premiums.

Here's an overview of how your credit score can impact various aspects of
your life:

Mortgages
Your credit score significantly impacts the amount you pay when purchasing a home. A
higher credit score corresponds to a lower average percentage rate (APR) on your
mortgage, making a substantial difference in overall costs.

For instance, according to myFICO, individuals with a "Fair" credit score of 620 might
expect an APR around 6% for a 30-year fixed loan. Conversely, those with an excellent
credit score of 760 or above could secure an APR of approximately 4.39%.

Let's consider borrowing $100,000 as an example. With a credit score of 620, using the
higher APR, you'd pay about $115,000 in total interest over the loan's life. In contrast,
with a credit score of 760, the total interest would be roughly $80,000, saving you
around $35,000 throughout the mortgage term.

Even if homeownership isn't on your horizon, your credit score remains crucial. Many
landlords conduct credit checks when assessing rental applications, underscoring the
significance of maintaining a favorable credit history.
Credit cards
Your credit score plays a pivotal role in determining the interest rate you'll be charged
on credit cards, or even if you qualify for one at all. Credit card companies typically offer
a range of average percentage rates (APRs) based on your creditworthiness. The
higher your credit score, the lower the interest rate you're likely to receive. Additionally,
individuals with good credit may qualify for 0% APR balance transfer cards, facilitating
faster repayment of credit card debt.

Moreover, many credit card companies offer rewards such as introductory offers, points,
airline miles, or cash back. The most lucrative rewards are often reserved for individuals
with good or excellent credit. These rewards can hold a cash value equivalent of
hundreds or even thousands of dollars, providing significant benefits to cardholders.
Loans
A good credit score can lead to lower interest rates when applying for various
types of loans, such as student loans, personal loans, or auto loans.

Student Loans

While federal student loans like Stafford and Perkins loans typically do not
require a credit history, private education lenders consider your credit score
when evaluating your application and determining loan terms. Resources like
Finaid can assist you in comparing private loan options. Additionally, if you
have stable finances and a good credit score, you may qualify to refinance
existing student loans, potentially saving thousands over the loan's lifespan
and accelerating debt repayment.

Auto Loans

For auto loans, individuals with excellent credit scores (around 780 or higher)
typically secure APRs around 5.64%, as reported by Experian. Conversely,
those with scores between 501 and 600 may face APRs exceeding 12.28%,
resulting in higher monthly payments.

Personal Loans

Similarly, the interest rate on a personal loan is influenced by your credit

score. If your score falls below a certain threshold, you may not qualify for a
personal loan, depending on the lender's criteria. Consequently, you may
resort to high-interest credit cards or payday loans in the event of a financial
emergency.

Overall, a good credit score can unlock favorable loan terms and save you
money over time.

Other Ways Your Credit Score Impacts Your Life

Utilities

You may find it surprising that several utilities companies perform credit
checks before commencing services. This practice applies to cable,
telephone, car insurance, water, and even cell phone service providers.

Employment Application

Employers may conduct a credit report check before extending a job offer to
evaluate your past financial management. This is especially common for
positions involving handling money. They seek to identify any negative
patterns in your financial history.

Small Business Loans

Before offering you a job, an employer might review your credit report to
assess how you've handled finances in the past. This scrutiny is especially
relevant for roles involving financial responsibilities, as they aim to identify
any negative patterns in your financial history.

What Affects Your Credit Score?

Your credit score is influenced by various factors that reflect your past credit
management. Understanding these factors can assist you in either improving
or safeguarding your credit, enabling you to leverage your score to achieve
your financial objectives.
The two primary credit scoring companies in the United States, FICO® and
VantageScore®, may differ slightly in their score calculation methods, but
they unanimously emphasize two key factors: payment history and credit
utilization.

Here's a breakdown of the factors that impact your credit score:

1. Payment history: Your track record of paying bills on time.

2. Credit utilization: The proportion of available credit you're using.

3. Credit history length: The length of time your credit accounts have been
open.

4. Types of credit on your report: The diversity of credit accounts you have,
such as credit cards, loans, or mortgages.

5. Number of credit inquiries: The frequency of recent inquiries into your

credit report.

6. Negative marks on your credit report: Instances such as bankruptcies,

foreclosures, or collection accounts that negatively impact your credit.

1.) Your Bill Payment History

Your payment history is one of the crucial components of your credit
report, indicating whether you've consistently met your financial
obligations by paying bills on time. When evaluating you for new credit,
lenders seek assurance that you'll repay debts promptly. Depending on
whether the FICO or VantageScore credit scoring model is employed, your
payment history typically contributes to around 30-40% of your credit
score.

2.) Your Credit Utilization

Your credit utilization ratio is determined by dividing the total amount of
revolving credit you're currently using by the sum of all your revolving
credit limits. In simpler terms, it reflects the proportion of your available
credit that you're currently using, including credit card balances and other
lines of credit, compared to your total credit limit. Lenders analyze this
ratio to gauge your reliance on credit.

Aim to keep your credit utilization ratio at or below 10-15%—the lower,

the better—for a healthier credit score.

3.) Your Credit History Length

Your credit history's length encompasses various aspects, including the
age of your oldest and newest credit accounts, the most recent activity on
each account, and the average age of all your accounts combined.
Generally, a longer credit history tends to have a positive effect on your
credit score. However, it's essential to actively use these accounts to
ensure this aspect positively impacts your score.

4.) Types Of Credit On your Report

Diversifying the types of credit accounts you have, such as car loans,
credit cards, student loans, mortgages, or other credit products, is
generally viewed favorably. Lenders appreciate seeing how effectively you
manage various types of credit, which can enhance your overall
creditworthiness.

5.) Number of Credit Inquiries

Every time you apply for credit and undergo a credit check, it results in an
inquiry being recorded on your credit report. While one or two inquiries
typically have minimal impact on your credit score, having multiple
inquiries within a short period can potentially lower your score.
Fortunately, the effect of credit inquiries on your score is generally minor.
For most individuals, each additional credit inquiry typically results in less
than a five-point reduction in their FICO score. It's crucial to understand
that checking your own credit score, known as a "soft inquiry," does not
affect your score adversely.

It's important to distinguish between two types of credit inquiries: hard

inquiries (or "hard pulls") and soft inquiries ("soft pulls").

Hard inquiries involve a comprehensive review of your credit report and

are typically associated with applications for new credit, such as loans or
credit cards. These inquiries can impact your credit score, resulting in a
deduction of points, as they indicate potential new credit obligations.
On the other hand, soft inquiries occur when you check your own credit
report or authorize someone else, like an employer, to review it. They may
also happen when a lender or credit card issuer assesses your credit for
pre-approval purposes. Soft inquiries do not affect your credit score.

6.) Negative Marks On Your Credit Report

Negative marks on your credit report, commonly known as "derogatory
marks," encompass instances like collections, bankruptcy, and
foreclosure. These entries usually remain on your credit report for seven
years and can substantially harm your credit score.

Missed Payments

When a payment is overdue by more than 30 days, it usually results in a

negative mark on your credit report. These missed payments can linger
on your credit history for up to seven years, and the longer the delay, the
more detrimental it is to your credit scores.

Repossession

If you fail to make payments on a financed item like a car, the lender may
reclaim it through repossession. This repossession record will remain on
your credit report for seven years plus 180 days from your first missed
payment.

Collections

If a lender doesn't receive a payment, they may transfer or sell the debt
to a collection agency. Having an account in collections will appear on
your credit report for seven years, even if you've settled the debt.

Bankruptcy

A personal bankruptcy will remain on your credit report for a certain

duration, depending on the type. A Chapter 7 bankruptcy typically stays
on your report for ten years, while a Chapter 13 bankruptcy remains for
about seven years.

Foreclosure

If you default on your mortgage payments and your property is seized by

the bank, it will result in a foreclosure being reported on your credit file.
Foreclosures typically remain on your credit report for seven years.
 Improving your credit score, especially when there are negative marks on
your credit report, might seem daunting. However, consistently making
timely payments and managing your credit utilization ratio can have a
significant positive impact.

How to Improve Your Credit Score

Improving your credit score is crucial for your financial well-being. If your
credit history isn't where you want it to be, you're not alone. While boosting
your score takes time and effort, your future self will appreciate the effort.

Here are some steps you can take to enhance your credit score:

1. Check your credit reports regularly.

2. Ensure you pay your bills on time, without fail.

3. Work on paying off existing debts and keep an eye on your credit
utilization ratio.

4. Be cautious about closing credit cards, as it can impact your credit

utilization and length of credit history.

5. Exercise prudence when applying for new credit accounts to avoid multiple
hard inquiries.

1.) Check Your Credit Report

It may surprise you to know that you don’t have just one credit score.
While you can't dictate which credit score a lender will utilize to evaluate
your application, you can review your credit reports to gauge your credit
health and spot potential fraud or errors. You have the right to access
your credit reports from Equifax, Experian, and TransUnion for free once a
year at AnnualCreditReport.com. Additionally, federal law allows you to
dispute any inaccuracies with the relevant credit reporting agency.

You can also use credit monitoring services such as IdenityIQ which pulls
a tri-merged ( all bureaus) report monthly without impacting your credit
score. Before applying for a car, mortgage, or credit card you can also use
MyFICO which will give you the variations of the credit scores that
lenders will see before applying for credit. MyFICO is the best way to
avoid hard inquires and know your chances of getting approved.
2.) Pay Bills On time, Every Time
Your payment history holds significant weight in determining your credit
score, making it crucial to pay all bills on time or even ahead of schedule
each month. Late payments or settling an account for less than the
agreed amount will have adverse effects on your credit scores. To ensure
timely payments, consider setting up automatic payments or utilizing
calendar reminders. It's essential to prioritize timely payments not only
for credit cards and loans but also for other expenses like student debt,
utility bills, rent, phone bills, and tolls, all of which can impact your credit
score negatively if paid late.

3.) Pay Off Debt and Pay Attention to Your Credit Utilization
Rate
Maintaining a healthy credit utilization ratio is vital for a strong credit
score. This ratio, which is the amount you owe on credit lines divided by
your credit limit, should ideally remain at or below 30%. This
demonstrates to lenders that you're not maxing out your credit cards and
that you're adept at managing credit responsibly. If you have existing
debt, prioritize creating a feasible debt payoff plan and try to minimize
additional card usage. Even if it's challenging, aim to make at least the
minimum payment each month to prevent further harm to your credit
score.

4.) Think Twice Before Closing Credit Cards

Closing a credit card account could potentially raise your credit utilization
ratio if you still owe the same amount but on fewer accounts. Therefore,
it's advisable to weigh the decision of closing an account, especially if it's
not incurring extra annual fees. Keeping the account open, even if you use
it sparingly, can help maintain a lower credit utilization ratio and
positively impact your credit score.

5.) Be Mindful When Applying For New Credit Accounts

While it's true that having a variety of credit types can positively influence
your credit score, it's not always wise to seek out new accounts. Applying
for unnecessary credit could potentially harm your score due to the
associated hard inquiries. Additionally, it might lead to overspending and
accumulating more debt, which could negatively impact your financial
health. Therefore, it's essential to carefully consider whether applying for
new credit aligns with your financial goals and needs before proceeding.
 Things To Consider:

Negative marks, like missed payments and collections, can have a

significant impact on your credit score, often staying on your credit report
for up to seven years. However, it's important to note that their influence
gradually diminishes over time.

If you're new to credit or have a limited credit history, you may not have a
credit score at all. In such cases, it's crucial to understand how to
establish your credit history and build a positive credit score. Keep
reading to learn more about this process.

How to Establish Credit

It's estimated that approximately 45 million Americans may face credit
denials due to having a limited credit history. This creates a challenging
situation where individuals need a credit history to establish a credit score,
yet accessing credit without prior history can be difficult.

For those without a credit history, obtaining credit becomes essential for
various financial activities, such as borrowing money, securing housing, or
even finding employment. If you're in this situation, there are several
strategies you can explore to build your credit profile from scratch. Let's take
a look at some of these options:

HOW TO BUILD UP YOUR CREDIT

To begin establishing your credit history, here are some steps you can take:

1. **Check to see if you have a credit score**: Start by checking if you

already have a credit score. You can do this by requesting a free credit report
from one of the major credit bureaus like Equifax, Experian, or TransUnion.

2. **Apply for a secured credit card**: Secured credit cards are designed
for individuals with limited or no credit history. These cards require a cash
deposit, which serves as collateral. By using a secured credit card
responsibly and making timely payments, you can gradually build a positive
credit history.

3. **Consider a co-signer**: If you're unable to qualify for a credit card on

your own, consider asking a trusted friend or family member with good credit
to co-sign for you or become an authorized user on their account. This can
increase your chances of approval and help you establish credit.

4. **Become an authorized user on a credit card**: Another option is to

become an authorized user on someone else's credit card account, such as a
family member or close friend. As an authorized user, you can benefit from
their positive credit history, but it's important to ensure that the primary
cardholder maintains responsible credit habits.

5. **Get your rent payments added to your credit report**: Some

credit bureaus allow you to report your rent payments, which can help build
your credit history, especially if you have a history of timely rent payments.
Check with your landlord or property management company to see if they
report rent payments to credit bureaus.

6. **Developing healthy credit habits**: Once you've obtained credit,

focus on building healthy credit habits. This includes paying your bills on
time, keeping your credit card balances low, and avoiding applying for
multiple credit accounts within a short period.

1.) Check If You Have A Credit Score

If you suspect you already have a credit history, you can obtain your
credit scores for free through AnnualCreditReport.com. This will
provide you with a starting point to understand your current credit status
and begin building your credit. Remember that it typically takes some
time for accounts to establish a credit history before they contribute to
your credit score.
It's important to note that there isn't just one credit score; there are
multiple scoring models with differences in how they calculate scores.
Understanding these distinctions can help you interpret your credit
information more effectively.

Consider signing up for a credit monitoring service like Identity IQ or

MyFICO to track your credit score progress over time. Be aware that
some of these services may come with fees depending on the level of
service you choose.

2.) Your Credit Utilization

Applying for a secured credit card is an excellent option for individuals
who are starting to build their credit history. Unlike traditional credit cards,
secured cards require a cash deposit as collateral, reducing the credit card
company's risk in case of missed payments. In many cases, the deposit
also determines your credit limit.

Most credit card companies offering secured cards report your payment
history to the major credit bureaus (Equifax, Experian, and TransUnion).
Consistently making on-time payments can positively impact your credit
score over time.

3.) Consider a Co-Signer

If you're facing a situation where you need a loan soon but have limited
credit history, enlisting a family member or trusted friend as a co-signer
could be a viable option. Having a co-signer can decrease the lender's risk
because it holds another individual accountable for repaying the loan if
you're unable to do so. This arrangement often improves your chances of
securing a loan or credit card, especially if you have minimal credit
history.

However, it's crucial to ensure that your co-signer has a solid credit
history before proceeding with your application. This precaution helps you
avoid potential loan denials or being offered high-interest rates.

4.) Become An Authorized User on a Credit Card

Becoming an authorized user on the credit card account of a family member,
partner, or close friend can be a straightforward strategy to help you
establish credit. When you're added as an authorized user, the account
activity may be reflected on your own credit reports in many cases. However,
it's essential to note that this method isn't foolproof, as not all credit card
issuers report authorized user activity to credit bureaus. Therefore, it's
crucial to confirm with the card issuer that they report such activity before
being added.

Keep in mind that you should only consider becoming an authorized user if
the account is in good standing, with a relatively low credit utilization rate.
This ensures that being added as an authorized user will have a positive
impact on your credit score, rather than potentially harming it.

5.) Get Your Rent Payments Added To Your Credit Report

Mortgage payments are typically reported on your credit report, but rental
payments usually aren't. Although you can't directly report rental
payments yourself, various rental reporting services are available to assist
you with this. These services vary in cost, ranging from free options to
those that charge around $100 per year. One of my favorites is
Rentreporters.com.

It's important to note that not all rental reporting services report to all
three major credit reporting agencies. Additionally, you may require
information from your landlord to set up these services successfully.
Therefore, when considering a rental reporting service, ensure that it
meets your needs and reports to the credit bureaus that matter most to
you.

6.) Developing Healthy Credit

While the aforementioned steps provide a solid foundation for building
credit, they represent just the initial stages of the journey toward a robust
credit score. To ensure ongoing improvement in your credit score,
prioritize making timely payments and maintaining a low credit utilization
ratio. These practices will contribute significantly to the long-term health
of your credit profile.
How to Check your Credit Report And
Scores
If you're aiming to build, enhance, or preserve your credit score, it's essential
to begin by understanding your current standing. But how can you achieve
this? Here are several methods you can employ to check your credit reports
and scores, providing you with a clearer understanding of your credit health.

How to Check Your Credit Reports

Request a free credit report from Annualcreditreport.com, or sign up for

Identity IQ for a Tr-Merged Credit Report (shows all 3 bureaus).

Under federal law, each of the three primary credit reporting agencies is
mandated to furnish you with a complimentary credit report once every 12
months upon request. You can access this report by visiting
AnnualCreditReport.com or by calling 1-877-322-8228.

According to the Consumer Financial Protection Bureau, you are eligible to

request additional credit reports if you fall into any of the following
categories:

1. **Adverse Action Notice**: If you've received a notice of denial for

credit, insurance, employment, or faced another adverse action based on
your credit report, you have the right to request a free report from the credit
reporting company mentioned in the notice. This request must be made
within 60 days of receiving the adverse action notice. Other adverse action
notices may include changes in the terms or amount of your credit or
insurance coverage, or changes in the terms of your employment, license, or
government benefit.

2. **Fraudulent Inaccuracy**: If you suspect that your credit file contains

inaccuracies due to fraud, you can request a free report to review and
address any fraudulent activity.

To obtain these additional reports, you can request them from

AnnualCreditReport.com.
3. **Fraud Alert**: If you've placed an initial fraud alert and requested a
credit report from a nationwide credit reporting company, you are entitled to
receive two free copies.

4. **Unemployment**: If you are currently unemployed and intend to apply

for employment within the next 60 days, you can request a free credit report.

5. **Recipient of Public Welfare Assistance**: If you are a recipient of

public welfare assistance, you are eligible to request a free credit report.

6. **State Law Provisions**: If your state law provides for a free credit
report, you can also request one based on these provisions.

Contrary to common belief, your credit report usually does not include your
credit score. While reviewing your credit report provides valuable insights
into your credit situation and serves as the foundation for calculating your
scores, to access your actual credit score, please follow the instructions
below.

How to Check your Credit Score:

- Use a credit score service or free credit scoring site:

Numerous websites offer the option to monitor your credit score
regularly, either at no cost or for a monthly subscription fee. However, it's
crucial to carefully review the terms and conditions before registering.

- Get Your Credit Scores Directly From Credit Reporting Agencies:

You have the option to acquire your credit scores directly from any of
the three main credit reporting agencies (Equifax, Experian, or
TransUnion), or from alternative providers like FICO.
- Check Your Credit Card or Loan Provider:
Certain credit card issuers and lenders offer complimentary access to
credit scores for their customers, often through monthly statements or
online banking platforms. It's worthwhile to check your account or
reach out to your lender to determine if this service is provided.
- Contact a Non-Profit Credit Counselor:
 Numerous credit counselors offer complimentary access to credit
scores and provide guidance on their interpretation. These certified
professionals specialize in reviewing your financial situation, identifying
challenges, and outlining strategies to address debt, create budgets,
and enhance your overall financial well-being. The National Foundation
for Credit Counseling offers resources to help connect individuals with
accredited credit counselors.

How To Dispute Errors on Your Credit

Report
Your credit report contains details regarding your residence, credit
management, and even legal matters like lawsuits or arrests. A Federal Trade
Commission study revealed that five percent of consumers identified errors
on one of their three primary credit reports, potentially resulting in higher
costs for items such as auto loans and insurance.

Federal law mandates that both the credit reporting agency and the
information provider—whether an individual, company, or organization—
rectify any inaccurate or incomplete information in your report.

Here Are The Steps To take If You Fine Errors On Your Report:

- Review your credit report

- Look for information to support your claim
- Dispute error
- Receive and review response

1.) Review your Credit Report

To obtain a free copy of your credit report from all three major credit
reporting agencies, you can use AnnualCreditReport.com, Identity IQ
(a paid credit monitoring service), or call 1-877-322-8228. It's worth
noting that there may be slight variations among your reports because
not all creditors report your account activity to all three bureaus.
Therefore, if you notice an error on one report, it may not necessarily
appear on the other two, emphasizing the importance of reviewing all
three reports.
While reviewing your reports, be vigilant for any information that could
negatively impact your scores or indicate identity theft, such as:

1. Incorrect account status, such as a payment being reported as late.

2. Negative marks that are too old to be reported - most must be removed
after seven years.

3. Accounts that do not belong to you.

4. Incorrect credit balances or limits.

5. An ex-spouse incorrectly included on a loan or credit card.

If you come across any suspicious information that you suspect could be a
sign of identity theft, it's crucial to take action:

1. **Verify with the Source**: Contact the source of the information, such
as a bank or creditor, to gather more details and confirm whether the
activity is legitimate or a result of identity theft.

2. **Report Identity Theft**: If you believe you've been victimized by

identity theft, follow the steps outlined by the Federal Trade Commission
(FTC) to report the incident and take appropriate measures to mitigate
further damage.

By promptly addressing any signs of identity theft, you can protect

yourself and prevent potential financial harm.

2.) Look for information to support your claim

If you've spotted one or more errors on your credit report, it's time to
gather supporting documentation to refute them. The type of information
you'll need will vary depending on the nature of the error, but it could
include bank statements, loan agreements, or legal documents like a
divorce certificate. The objective here is to assemble evidence that
efficiently and effectively supports your case.
In the event that you've reported identity theft, be sure to include a copy
of your Federal Trade Commission complaint or any relevant police
reports.

Remember, disputing errors on your credit report is free of charge, and

there's no limit to the number of items you can dispute. Take advantage of
this opportunity to ensure the accuracy of your credit profile.

3.) Dispute Error

Each of the major credit reporting agencies, Equifax, Experian, and
TransUnion, offers options to dispute errors either online or via mail. While
you can also contact them by phone, please note that finalizing the
dispute may not be possible over the phone. Below are the contact details
for each agency:

Equifax:

- Online dispute: https://www.equifax.com/personal/disputes/

- Mailing address: Equifax Information Services LLC, P.O. Box 740256,

Atlanta, GA 30374-0256

- Phone: 1-866-349-5191

Experian:

- Online dispute: https://www.experian.com/disputes/main.html

- Mailing address: Experian, P.O. Box 4500, Allen, TX 75013

- Phone: 1-888-397-3742

TransUnion:

- Online dispute: https://www.transunion.com/credit-disputes/dispute-your-

credit

- Mailing address: TransUnion LLC, Consumer Dispute Center, P.O. Box

2000, Chester, PA 19016

- Phone: 1-800-916-8800
Choose the method that works best for you to initiate the dispute process
with each credit reporting agency.

Step 4: Receive and Review Responses

After you've submitted a dispute, the credit reporting agency is required

to investigate it and inform you of the outcome in writing. Typically, they
must respond within 30 days. If the agency agrees that an error occurred,
they will remove it from your credit report and provide you with an
updated copy. You also have the option to request that the agency notifies
anyone who received the erroneous report within the past six months, or
two years for employers.

However, if the credit reporting agency or information provider disagrees

with your dispute and chooses not to remove the information, you can
escalate the matter to the Consumer Financial Protection Bureau (CFPB).
As a government regulatory agency overseeing federal financial laws, the
CFPB will investigate your dispute upon your explanation and provision of
proof. You can track the progress of your dispute through email updates or
by logging into the CFPB website.