How to improve credit score?
A good Credit Score means that you are a financially disciplined person who can be trusted to respect financial commitments. The journey to a good credit score comprises of the following steps:
Step 1: Understand your earnings and spending
Know how much you make, understand all the deductions, the reasons behind it, and track where you spend your money. This will give you knowledge of your income and expenditure. You should regularly analyze your Bank statements to track your spending, inflows, and outflows.
Step 2: Plan your finances
Write down your financial problems and goals. Writing them down gives you clarity and finality, rather than constantly thinking and worrying about your finances without having a clear idea of what the issues are. After which you need to plan what you want to do for example, do you want to pay of your credit card debt in 3 months (or) save a certain amount of money before a certain time (or) pay the down payment for a new house. Decide on what you want to achieve.
Step 3: Implement your plan
This is the most difficult part – doing. Implementation of your plan should include
Watch Your Spends
Do not spend more than what you have. Even better decide a cut-off point and save the rest. Try to keep your spending below your cut-off point. Credit card holders need to pay off their debts on time and keep their credit limited to 30% below credit utilization ratio.
Find ways to increase your income
Find alternate sources of earning income like freelance article writing, part time jobs in retail shops or any other means which you are comfortable with. Use this fund wisely or save it for emergency purposes.
Pay off your debt:
Pay off your existing credit card, education loan, car loan etc. This needs to be your priority. This is eating away at your salary every month and needs to be closed as soon as possible. Aggressive payment of debts is what is required here.
Step 4: Review, Monitor and Adjust
After implementation review your actuals with plan. If there is deviation, adjust it accordingly. Continuously review your results on a weekly basis. This way you will know what you are earning and how much you are spending and if you are on track with your goal.