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5 Tips for Rebuilding Your Credit Scores After Your 20s

5 Tips for Rebuilding Your Credit Scores After Your 20s

If you’re anything like me, your early 20s were not your most financially sound years. With a low-paying job, rent and bills to pay, and plenty of shiny gadgets tempting you at every turn, credit cards often seem to magically make it all work… until they don’t anymore.

Sadly, once you get your act together and want to start making adult purchases such as cars and houses, those foolish financial missteps can come back to haunt you. Thankfully, there are many ways to help repair your credit scores, which in turn will allow you to secure better financing on those large, milestone purchases your more mature mind is now focused on. Here are 5 suggestions to help you get there.

1. Consider Debt Consolidation

Not to be confused with debt forgiveness or bankruptcy, debt consolidation simply refers to the idea of moving all of your outstanding debts to one place in an effort to make paying them off easier. There are a few reasons why this could be a good idea, not the least of which is the path to financial freedom it provides you. Additionally, depending on how you choose to consolidate, it could serve to boost your credit scores.

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The two most popular forms of debt consolidation are personal loans and balance transfers, both have their pros and cons. First, personal loans can be good for boosting your credit scores because they will move your debt from revolving lines of credit to installments. That’s significant because your maxed out credit cards will carry more weight than installment loans when it comes to your credit utilization ratio. Since credit utilization/available credit makes up 30% of your FICO scores, paying off your credit cards with a loan should give you boost.

Sound good? Well, there are a couple of snags you should know about. As you’re undoubtedly aware, banks aren’t really in the business of lending you money for free. Because of this, you’ll want to ensure that the interest rate and APR (annual percentage rate) you’re offered on a loan doesn’t exceed what you’re paying on your credit card(s). On top of that, many lenders will charge what’s called an origination fee—a percentage of your loan amount that you pay to the lender and don’t get back. For these reasons, it’s a good idea to do the math or use a personal loan calculator when exploring your options.

Another form of debt consolidation is a balance transfer. Typically this is done by opening a new credit card with a 0% introductory rate and then transferring the debts from your other cards to your new one. Although this might save you a good amount of money in interest if you’re able to pay down the entire debt quickly, it could end up hurting even worse if you let that introductory offer end. Additionally, be aware that most cards charge you a balance transfer fee – as high as 5% of the amount you are transferring. Lastly, opening a new card will actually ding your credit temporarily since it’s a new credit inquiry, but the added credit availability will help you down the road.

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2. Keep Your Cards Open

Regardless of what method of debt consolidation you use (or don’t use, for that matter), you may be surprised to learn that closing your paid off cards is actually a terrible idea. Sure, it might feel good to call up your credit card company and tell them where to go, but closing your account can hurt your credit scores big time.

Part of the reason for this goes back to the idea of credit utilization. If you close your accounts, you’ll have far less available credit, which is a disadvantage in the eyes of FICO. Plus, a lesser (but still important) factor affecting your scores is your length of credit history. Unfortunately, when you close an account, the time you held that card no longer gets added into this average. It’s a much better idea to leave your cards open and just use them responsibly.

3. Try A Secured Credit Card

Didn’t get the “don’t close your cards” memo until it was too late? If you’ve really tanked your credit, it may be difficult to get approved for a new credit card at first. Even more frustrating, without a credit card, rebuilding your scores can be tricky. That’s where secured credit cards come in.

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What makes secured cards different from the ones you’re familiar with is that they require a deposit. The size of that deposit will depend on the card issuer and the credit limit you’re seeking, but it’s typically a few hundred dollars. Since you’re giving the card issuer collateral, these cards are far easier to obtain than unsecured ones, making them a good choice for those who are nearly out of options.

4. Pay Your Bills On Time

This may seem obvious, but it’s a huge help. Although any overdue payments you’ve made in the past will stick to your credit report for seven years (much like swallowed gum), putting those behind you and establishing a clean streak will serve you well. Additionally, while you will still see those errant payments on your report, their damage to your scores will diminish with time, so don’t fret too much.

5. Monitor Your Credit

Even if you abide by all of these tips in hopes of repairing your credit scores, how will you know if any of your efforts are paying off if you don’t bother to check? Thanks to modern technology, keeping up with your credit scores is now easier than ever, and often free.

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One place you should start is AnnualCreditReport.com, which provides you with your Equifax, Experian, and Transunion credit reports free once a year. The bummer here is that, in order to actually view your scores, you’ll have to pay. However, reviewing your report is extremely important because you may catch errors that are dragging your scores down unfairly.

As far as your scores are concerned, some credit cards now provide you a FICO score on your statement or on their website. If not, you can also try sites like Credit Karma to get a rough idea of what your scores look like. I say “rough idea” because Credit Karma utilizes the Vantage model for calculating credit scores as opposed to the more common FICO model. Because of this, you may see discrepancies, but at least you’ll be in the ballpark.

Yes, it’s true: adulting is hard. Alas, many of us make some major financial mistakes in our 20s that affect us as we attempt to be real adults a decade or so later. The good news is that, even if you’ve trashed your credit scores in the past, they do change and can recover. By paying off your debts, looking for secured forms of credit, paying on time, and keeping an eye on your credit, it will only be a matter of time before those dark fiscal days are finally behind you.

Featured photo credit: Pymnts.com via pymnts.com

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Published on November 11, 2020

10 Best Ways to Save Money Faster and Smarter

10 Best Ways to Save Money Faster and Smarter

People love to talk about budgeting, reducing spending. and investing. But unfortunately, talk is cheap, and poor money management is expensive. It’s easy to talk about the best way to save money, but putting it into practice is a different thing.

What people need to talk about is the practical and efficient ways you can quickly save money to accomplish your goals. After all, they don’t teach this stuff in school.

Here are the 10 best ways to save money faster and smarter.

1. Cancel All Your Subscriptions

Yes, all of them.

Okay, you can keep your wifi and trash. But other than that, cancel all your monthly subscriptions for one month. You will survive, I promise. Better yet, you will realize you won’t miss all of them.

Now that you have had 30 days to examine what you really missed and what you never thought twice about, you can add some of them back in. The others? you never have to think about them again.

This is something you can and should do with every part of your life. If it’s clutter, cancel it. Being able to step back and see what is cluttering your life and what is excelling your forward helps improve your quality of life and financial standing.

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2. Automate Savings From Your Paycheck

Many of us are so excited about getting a new job that we rush through the paperwork during the hiring process. Good news for you, I have had lots of jobs so I have seen it a million times.

There is an option for a portion of your paycheck to go directly into a secondary savings account. This is by far the most effective way to save money every month. We tend to spend most of what we have. So, if we take it off the top first, then it’s less likely to be spent. Just head over to HR and ask. It will only take two minutes.

3. Cancel the Happy Hours for the Rest of the Pandemic

We are in the middle of a global pandemic, which means that there is no better time to buy some drinks from the local store and stop shelling out $5 a drink at the local cocktail bar. When we look back at our bank statements, we are always shocked that fast food and alcohol can add up so quickly. You can easily save a couple of hundred dollars just by taking this step.

A great exercise is to print out your last bank statement and highlight all the areas of alcohol and fast food. The amount may surprise you and make you think twice about that old fashion.

4. Online Grocery Shopping

Some people think online shopping increases the amount they spend. For the most part, I would agree—except for this category.

Online grocery shopping is now a no-brainer, though. Whenever you walk through a grocery store, two things always happen: you always grab impulse items, and you never know the total of your cart until you checkout. This means that we always spend more than we originally planned.

With online shopping, you can see your total as you add items to your cart. You are way less inclined to make those impulse purchases and because of that, I would venture to say that you could even pay to have them delivered to your door and still save money each month by choosing online grocery shopping.

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5. Get a Famzoo Debit Card

This is something my wife and I swear by, and it’s great for the entire family! Famzoo strictly exists to help families and kids budget their money better. Each month, my wife and I have an allotted amount loaded onto our pre-paid Famzoo debit card. This amount has changed every year depending on promotions, kids, stage of life, etc.

The important part is that when you give yourself the freedom to spend a certain amount, you are more likely to only spend the allotted amount. Think of it as a diet. If you are counting calories, you are more likely to stick close to the amount you set. You can also look for some tips online to better stick to your family budget.

6. Purge

This is actually my favorite to do, and it is actually one of the best ways to save money. Raise your hand if you have ever moved. Okay, so everyone.

When we move, we are always amazed at how much junk we have acquired. I have found that about every 6 months, I can find a couple of boxes to sell online of things that we never use. This not only gives you so extra quick cash, but it also keeps your house more tidy and organized.

Now, go clean out that garage!

7. Amazon Subscribe and Save

32! That is how many items I have setup on amazon subscribe and save. Let me explain.

This sounds expensive, I know. But it actually saves us hundreds of dollars per year! We all need toothpaste, shampoo, razors, laundry detergent, toilet paper right? This feature is truly a triple threat. When you have more than 5 items on subscribe and save, you automatically unlock the max savings for every product on your list. This can be up to 20% per item!

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Now, even better is that it ships straight to your door on the exact day you want the item, maybe monthly or maybe you only need it every 4 months. This way, you never have too much or never run out. Either way, it’s totally customizable.

Lastly, there is no contract for any items, which means you can switch brands or items at any given time at no cost. My advice: every single staple item should be on your subscribe and save.

8. Rewards

This may ruffle some feathers, but if you are using your debit card for purchases, you are missing out on free money! We have this notion that credit cards are evil but in reality, they are the same piece of plastic as your debit card.

How you use it can be bad, don’t get me wrong. But if you want my opinion though, ditch the debit card and get a rewards credit card. Use it just like you would your debit card and make sure to pay it off as soon as the statement comes in!

Just to give you an idea of how powerful this can be in terms of money, here are some things that our miles have paid for:

  • 4 nights in Vail with Flight
  • Rental car in Vail (convertible might I add)
  • Flight to Ireland
  • Flight to Hawaii
  • Multiple staycations at very nice Hotels

That’s roughly about 7 thousand dollars in travel expenses so far! Remember that the credit card is just a tool and can be one that benefits you if you use it wisely. Ironically, this can be an effective way to save money.

Pro tip: If you don’t trust yourself carrying around a credit card, then set up all your monthly bills with your credit and leave it in a drawer at home. This way, you rack up miles but don’t get tempted to overspend.

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9. Vacation With Friends

Now, I know travel is hard right now but what a perfect time to go grab an Airbnb in the woods with a couple of friends and detox from the world right now!

Vacationing alone can be pricey and get rather boring quickly, but if you split lodging and set out for a road trip, it can become affordable quickly! For a couple of hundred bucks apiece, you can have one of the most relaxing vacations ever. Don’t forget to pick up your food at the local grocery store to avoid eating out every meal!

10. Make a Budget

When is the last time you updated your budget or made one for that matter? Making a budget is like writing down your goals. If you don’t make a budget, then you will struggle to save.

How can you know if you are spending wisely if you are not tracking everything?

Our advice would be to get a finance app like Mint, Every dollar, or personal capital. All these apps are free and do a tremendous job of tracking spending and budgeting. I still am old-school and have an excel spreadsheet which I do highly recommend.

Work Smarter, Not Harder

The entire goal is to boost your bank account while reducing the effort required. Efficiency is the name of the game, and automation is the key player. Luckily, we live in a world that has more perks than we can ever take advantage of. But if I were to choose a few, it would be the ones above.

Taking on all 10 of these steps may seem a little daunting. You can first try to pick three of your favorite and start there. Saving money doesn’t have to be a chore as long. As we use the tools correctly, it can be quite effortless. And now, you have a great blueprint to get started!

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Featured photo credit: Sharon McCutcheon via unsplash.com

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