Controlling spending habits and building credit resources is recommended for all people seeking to manage a personal budget and build cash reserves. There are certain proven steps recommended for all people to cope with the financial uncertainties of life. Saving money on a regular basis, living under budget, and creating lender relationships are three keys to financial health.
Creating a Creditworthy Profile
It takes some time to establish a good credit score. For this reason, it is important to get started as soon as possible. The goal is to have a good score before you actually need to use it.
Credit scores are calculated using a complicated formula that rewards paying on time and having a low percentage of debt as compared to the amount of credit available. Lenders also analyze debt-to-income rations, so it is also important to keep debt low respective to income. Due to the fact that having credit accounts for a longer period of time drives credit scores up, people who are just getting started are slightly penalized with a lower score until they have opened a couple of accounts and paid them on time for a few months in a row.
Credit rates are adjusted by lenders based on perceived risk. Certain lending institutions position themselves in the high-risk market, charging high interest rates to cover the higher risk assumed. Conversely, other lenders only lend to borrowers with excellent credit, offering lower rates for clients with a proven track record for paying on time. As a borrower, you definitely want to qualify for the lower rates, since higher interest charges can quickly add up.
Opening Up Credit Options with Attractive Terms
Taking a methodical approach to create a positive credit file opens up new credit options over time. Once a credit score of about 750 or higher is reached, it becomes much easier to obtain credit when necessary. Opening up a credit card or two for emergency purchases like car or household repairs is a great way to open doors for bigger loans like a mortgage or car loan. Staying away from finance companies and other high-rate lending institutions is important. Showing high-rate lenders as part of your credit file can actually have a negative impact on credit scores.
Opening up a credit card account at a reputable bank or credit union that also offers car loans and mortgage products is highly recommended to pave the way for additional credit in the future. During a tight credit market, it is particularly helpful to have an established relationship of proven creditworthiness first before applying for a large loan. Lenders are much more likely to loan money to customers they already have experience with, as a risk avoidance measure.
Living Within Your Means
The challenge most people face is living under budget and saving money. It is critical to live within your means and to get a savings account started. Making regular deposits is essential. Experts suggest that some money be automatically deposited into your savings account from your paycheck each pay period. It is psychologically easier to save money using automatic payroll deductions, then to rely on yourself to manually make that deposit.
Following a strict budget is critical to ensure timely payment of all of your bills. By making a budget that is six or twelve months out, it encourages budgeting for certain expenses that must be paid annually or every six months. For example, most people have to pay for a car tag once a year. Others must save to pay for taxes by April 15th each year.
Budgeting for a rainy day is the best way to stay on top of your bills. By saving money and paying bills in a timely fashion, lenders will reward you with lower rates when you need a loan. Being financially responsible attracts lenders who want to loan you money for reasonable rates.
Author Bio: Joe McGowen is finance writer at SaveMyBacon Payday Loans.
Joe is passionate about responsible lending and helping people save money and achieving a better financial situation. You can find him over on Google +