THREE WAYS TO IMPROVE YOUR CREDIT SCORE
You’ve learned about why a good credit score is so important. But how can you improve it? Here are three habits you can start today to build a better credit rating.
1. Pay your bills on time
Late or missed payments can lower your credit rating. Even if your minimum monthly payment is small, it is crucial to make it on time. A missed $10 payment will have the same effect on your credit as missing a $1,000 payment!
This also includes bills not linked to your credit card. Utility and gas bills are not part of your credit history, but if they go into arrears and a collections agency is called, it will negatively impact your credit score.
HOT TIP: Although you want to make sure you’re making your credit card payments on time, paying off your balance too often makes it seem like you’re not using credit at all. Find a schedule that works for you and your budget and ensure your payment is posted before the due date.
2. Keep your balances low
If you have revolving credit, whether on a credit card or line of credit, ensure the balance is not always maxed out. Keeping your balance to approximately 75% of the approved limit regularly will keep your credit score high. For example, if your credit limit is $1,000, your outstanding balance at the end of the month should not be more than $750.
3. Limit the number of credit cards and credit applications
Only apply for the credit you truly need. The more applications and cards, the more chances of having a negative impact on your credit score.
HOT TIP: As you work to build good financial habits, determining your money personality — the way you think, feel, and behave toward finances — is a great place to start.
Read our article to learn which of the four money personalities you are.
What if the unexpected happens?
Sometimes emergencies happen that are impossible to predict. If you’re experiencing financial difficulty due to challenges like a job loss, unexpected bill, or illness, don’t wait — reach out to a lending specialist who can collaborate with you to explore your options. They aren’t just available to help you choose a borrowing solution — they’re also a great support to help you navigate challenging times and stay on track with your financial goals.
FIVE TIPS FOR PAYING DOWN CREDIT CARD DEBT
Finding ways to pay down credit card debt can feel overwhelming or even impossible. These five tips are designed to help you take small steps toward getting back on track. From creating a budget to strategies for getting out of debt faster, this article includes information to help set you up for success.
1. Create a budget
One of the easiest ways to build a good credit score is to prevent taking on too much debt. You can accomplish that by creating a budget to manage your spending. Just as you wouldn’t book a vacation without knowing how you are going to get there or where you’re staying, you wouldn’t want to spend your hard-earned money without a realistic plan.
Creating a budget for your monthly spending. This may be the single most important financial decision you make. Once you have a budget, you can begin to save toward your goals instead of using credit to achieve them.
Track income and spending. Start by tracking your income and spending for a month or two. This will help you to figure out your financial needs while looking for any areas of over-spending. It might also help you to be more mindful about how you spend your money going forward.
Adjust your spending habits. Now that you have a clearer picture of your spending habits, you can look for ways to pay down your credit card debt faster by reducing unnecessary spending. For example, if you typically buy lunch three times a week or spend $100 a month on clothing, consider packing a lunch and giving yourself a clothing allowance. Reducing these types of expenses allows you to focus on paying down what you already owe and are paying interest on.
Check out these budgeting calculators and worksheet to help you get started:
Try our :
Budget Calculator or personal
Loan Calculator
Trying to build a budget for school? Try the
Student budget worksheet
2. Cut back on expenses Every dollar you put toward paying off credit card debt will go a long way toward reducing your balance. And it will save you money as you’ll end up paying less interest. If it helps, don’t think of this process as limiting what you can buy. It’s more about managing expenses by reducing your debt now so you can buy the things you want later.
Start with small steps. It can be hard to give up things you’ve grown accustomed to having, but every little bit counts. Start by making small changes, such as only eating out once or twice a month instead of every week, making coffee at home instead of stopping to buy coffee every morning on your way to work, or only paying for one streaming service at a time rather than all your favourites at once. You’ll be amazed by how much traction you’ve gained in paying off your debt after one month of small changes.
Review your budget often. A terrific way to pay down your debt faster is by applying any raises or extra income you receive to the card or cards you’re working toward paying off first. You might be surprised how much faster you can pay down credit card debt with even just a little extra added to each payment you make.
Prioritize high interest rates. While it’s important to continue making at least the minimum monthly payments on any credit cards you have that carry a balance, you can still do that and work towards paying down debt faster.
There are two main ways to approach credit card debt:
The avalanche method. After you’ve determined the balances and interest rates charged on each card, this method focuses on paying off the card with the highest interest rate first. This helps reduce the amount of interest you pay, which then allows you to apply those savings to pay down your other cards.
The snowball method. If you find it more motivating to see faster results, you might choose to focus on paying down the smallest balance first. Once that card is paid off, move on to paying down the card with the next smallest balance. Using this method might provide you with a quicker sense of accomplishment as you continue to pay off each card in full.
Explore other strategies for paying down credit card debt faster
Make more than the minimum payment. Whether you choose the avalanche or snowball method, if you can comfortably afford to make more than the minimum payment on each card you carry a balance, you’ll reduce the amount of interest you’ll pay. And you might be surprised how much money this ends up saving you over time.
Consider switching to a new credit card. Some credit cards offer an introductory reduced interest rate on balance transfers. This means you could apply for a new credit card and transfer the balance from your current card to take advantage of that reduced rate. Typically, these cards offer a lowered interest rate on balance transfers for a specific amount of time—often six or nine months. If you choose to go this route, try to pay off the balance before the interest rate goes up. It’s also important to keep in mind that the reduced interest rate only applies to the amount you transfer. Balances from any new purchases made on that card will be charged at a higher interest rate.
Consider a consolidation loan. A consolidation loan or line of credit is another great solution. This allows you some extra breathing room in your budget while supporting a payment schedule that keeps you on track. A consolidation loan wraps your credit card debt, and any other high-interest debt, into one easy payment. What’s more, it often saves you thousands of dollars in interest, depending on how aggressively you set the repayment structure. Another option to consider is refinancing your home to leverage its equity, which can be a helpful step in setting your long-term financial plan.
3. Avoid new credit card debt
The best way to pay off credit card debt is to avoid new credit debt. While it might be tempting to continue using your credit cards, paying off your debt without increasing debt is key.
Focus on paying off your current debt. Keep in mind that your credit card debt increases every time you use your card. If you focus on paying off what you currently owe first, you can better control your spending once you’re no longer carrying a monthly balance with high interest rates.
Stick to using cash or debit cards. It’s important to remember that credit card interest is typically calculated daily. Meaning, any interest you owe is added back to your existing balance. This is why your credit card debt can grow every day, even if you aren’t continuing to use your card for new purchases. While you’re paying off your credit card debt, one way to ensure you’re not increasing your debt is by only paying for things you have the money for right now. And the best way to ensure that is to buy items using either cash or your debit card. At least for now, you might find this to be an easier way to manage your expenses.
Most importantly, remember to be patient with yourself. It will take some time—but you will get there! And, regardless of how you approach paying off your credit card debt, we’re here to help.
READY TO TAKE THE NEXT STEP?
Meeting with a lending specialist is a wonderful opportunity to ask questions and explore ways to build financial habits to last a lifetime in order to maintain and improve your credit rating. SCU has all your borrowing options, so you have all the tools you need to make the right decisions that make the most sense for you.
Book an appointment online today
