Hopefully after last week’s blog you went online and ordered your credit report through www.annualcreditreport.com. Did you also go to www.myfico.com and order your credit score based on the FICO model? If you’re FICO score is below 650, you’re paying more for personal insurance than someone who with a higher score. How much more? According to an article in the Dallas Morning News on April 1, people with low credit scores are paying as much as 42% more for their home insurance and 15% to 46% more for their car insurance.
In order to bring your insurance rates down, you’ll need to improve your credit score. Here are 8 things you can do to put you on the road to financial independence and a better score;
- Correct the mistakes: Most people have some discrepancies or even inaccuracies on their credit report. Start with the credit bureaus first to get these items corrected and then get with your individual creditors if needed.
- Pay on time: Review your payment history. Are you paying on-time or late? Pay on-time and improve your score.
- What’s the balance: Being over the limit really knocks your score down. Get your balances under what your limit is. DeAnna Morgan, a mortgage loan officer with Benchmark Mortgage relayed to me the FICO score is negatively impacted with any unpaid balance greater than 30% of your limit.
- Track your spending: Record everything you spend your money on with a credit card, debit card, and cash. Do this for at least 30 days, preferably 90, and you’ll begin to see how your money flows.
- Put it on the calendar: If all your bills are hitting at the beginning of the month, divide when they’re due. Split some into the first of the month and others into the middle of each month. This helps with cash flow and improves payment history.
- Make a budget: There are a ton of budgeting tools available through most bank’s websites (check your main account page), Quicken, www.mint.com and other resources below.
- Pay off debt: Total up the amount you owe on credit cards, car loans, student debt, home equity lines of credit and anything else. Then focus on one to pay off. This can either be the smallest one or the one with the largest interest rate. Pick the right one for you and start. Today!
- Spend less: I know, it sounds easy, but this is where the tough choices will be made. Eat out less or notch where you eat out down. Pack your lunch, skip the sale at Macy’s, shop for gas, change where you buy groceries (use coupons), don’t upgrade the phone just yet. Get creative about ways to cut your spending.
There are many reasons our financial house burns up; divorce, job loss, illness, or simply trying to keep up with the illusion of how others are living. All of these can be corrected and a solid education is where I started. If you are like me, you probably had more education from your parents on the birds and the bees than you did on money.
Here are 5 resources to help with your education;
- Dave Ramsey: Check out www.daveramsey.com, specifically Financial Peace University. I attended this with my wife Sheri. It gave me a framework to become debt free, a way to communicate about money, and a road map once the debt was paid off.
- Suze Orman: Suze’s website is www.suzeorman.com and I either read all her books or listened to the audio versions. She helped me understand the principals more and why I’d made some of the choices I’d made.
- Alexa Von Tobel: I ran across this today on Yahoo.com. Her website is www.learnvest.com and at first blush, there are some excellent free tools as well as the ability to work online with a financial planner.
- Mint & Quicken: www.mint.com offers some great spending tracking, categorizing and budgeting tools online and through apps for your phone! If you prefer to do this at home, get a copy of Quicken and use that.
- Blogs: There are some entertaining, useful and insightful blogs out there on money including; Dave Ramsey, Man vs. Debt, Pamela Yip at the Dallas Morning News, Gen X Finance, Wallet Pop, Financial Samurai, The Consumerist, Wise Bread (no relation to me but I like the name), Money Saving Mom, Get Rich Slowly, and literally hundreds more.
Getting one’s financial house in order is like losing weight. To lose weight and keep it off, it takes time, changing eating habits and making healthy choices. Same with improving one’s score or rebuilding one’s financial position. It takes time, requires new habits and new choices. It can be done and the results can be pretty amazing.
What have you done, or are doing to improve your score and financial independence? What tools do you use? Let us know! We’ll all learn something from it.