How do I start improving my credit file?
Discover the most practical steps that can help you improve your credit ratings and strengthen you financial portfolio.
First Step: Identify your automatic response when faced with a financial situation
One day, a specialized lender offered you a $10,000 unsecured loan. You want to take it because you have an extensive amount of credit card debt, unpaid utility bills and important purchases to make. Or, maybe you want to start a small time business or a side job to augment your income. All these situations require financial decision making. Despite the varying circumstances involved; the main focus when making the financial decision is to improve your credit score, reduce your debts and strengthen your finances.
How can I best plan for my credit file using the proceeds of my unsecured loan? Here are personal responses that a borrower should consider when making a financial plan:
- Conduct a research about making major financial decisions. The internet is full of financial planning resources that could help you decide which option to take. You can also call the banks and lending companies with regards to their loan products and eligibility requirements.
- Write down your specific financial goals for this year and the next year. Paste it on an eye-catching area in your home, where you can always see it. The list would serve as a reminder whenever you feel like overspending or ignoring your budget.
- Identify financial risks that you are most likely to face
- Understand that time is money—and if you take advantage of the time value of money you can earn more, save more and spend less in the ears to come.
Second step: Evaluate your finances
Within the next six months, Mary will complete her interior design project with a major construction company. She has also worked part-time in a marketing position. She is single, with a savings fund of $5000 and over $20,000 debts made up of student loans, credit card debts and unpaid utility bills. If you are Mary, what actions will you take to improve your credit score and unpack your financial situation?
If you are receiving your income from various sources, it is important to calculate the total income you receive per month. Prepare a list of your current liquid assets, or those that you can readily use whenever you need cash. Next, write down your current debt balances. Then, determine the specific amounts that you need to spend on a daily basis. Finally, analyze if your current income is enough to cover all your financial obligations each month. The results would serve as a clear foundation for financial planning. It will provide the information you need to match your financial goals with your current income and earning capacity.
Third Step: Set-up your financial goals
Mary, in the above example, has many goals. She wants to pay off all her outstanding debts and launch her freelance interior design company that provides services to multi-national companies, not only in New South Wales but all over the country.
If you are Mary, what are the goals that might apply to your situation? It is important to describe your immediate, short-term and long-term goals depending on your current financial situation.
You might find it helpful to analyze your values when it comes to money. Identify how you feel about money and whether such response can help you reach your financial goals. For example, if you think money is a tool to grow more money, then you have a good chance of growing it in a short time. But, if you think of money as something that you have to work hard on, yet spend so quickly based on household needs, social expectations and need for luxury, you might need to sit down for a while and re-think your financial priorities.
Fourth Step: Identify and evaluate your alternatives
Mary has several options available right now. She can get a copy of her credit report from the three major credit reporting companies in the country so she can dispute each inaccurate item and probably boost your credit score. She can also use the information to prioritize the debts she needs to pay right away. She could get additional projects, work on more part time gigs and save for full payment of her current debts; or she could take an unsecured debt consolidation loan to pay off all her debts and have some extra cash to establish her interior design firm.
If you are Mary, what additional options would you consider? If you have built up equity in your home, you can use it as a capital or as a debt consolidation tool. You might say, how can this help improve my credit file? It’s simple, when you have paid off your high-interest debts and replaced it with a single debt; your score immediately gets additional points. If you pay on schedule and you use the extra money to grow more money, your finances will be better, and you don’t have to get a loan or miss your loan payments anymore.