Advertising
Advertising

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.

Advertising

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.

Advertising

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.

Advertising

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.

Advertising

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

More by this author

Earning Easy Money on Your Extra Funds Is Borrowing From Your 401(k) a Smart Move? Five Quick Money Tips for the New Year 4 Apps Worth Downloading Just for the Bonus Perks 4 Better Things To Do on Black Friday Than Shop

Trending in Money

1 How Personal Finance Software Helps You Get More Out of Your Money 2 The Best Ways to Save Money Even Impulsive Spenders Can Get Behind 3 How to Answer the Tough Question: What are Your Salary Requirements? 4 The Definitive Guide to Get Out of Debt Fast (And Forever) 5 35 Real Ways to Actually Make Money Online

Read Next

Advertising
Advertising
Advertising

Last Updated on January 2, 2019

How Personal Finance Software Helps You Get More Out of Your Money

How Personal Finance Software Helps You Get More Out of Your Money

Do you know what mental health experts point to as the biggest cause of stress in the United States today? If you said “money,” then ding, ding, we have a winner!

Three out of four adults today report feeling stressed out about money at least part of the time. People are either worried about not having enough money or whether they’re putting the money they do have to use in the best possible way.

Your money is either in charge of you or you’re in charge of it, there’s no middle ground. Using some type of personal finance software can help alleviate some of that money stress and better allow you to manage your money effectively. Without it, you may just be setting yourself up for constant financial worry. Life is already tough enough and there’s no need to make it more difficult by simply hoping your money issues will all work out in your favor. Hint: they won’t.

This guide will help you to understand how personal finance software can better assist with both accomplishing long term financial goals and managing day-to-day aspects of life.

Whether it’s tracking the savings plan for your child’s college fund or making sure you won’t be in the red with the month’s grocery budget, personal finance software keeps all this information in one convenient place.

What Exactly is Personal Finance Software?

Think of it like the dashboard in your car. You have a speedometer to tell you how fast you’re going, an odometer to tell you how far you’ve traveled, and then other gauges to tell you things like how much gas is in the tank and your engine temperature. Personal finance software is essentially the same thing for your money.

When you install this software on your computer, tablet, or smartphone, it helps to track your money — how much is going in, how much is going out, and its growth. Most personal finance software programs will display your budget, spending, investments, bills, savings accounts, and even retirement plans, levels of debt, and credit score.

Advertising

How It Leads to Financial Improvement

It shouldn’t come as a surprise, but people who regularly monitor their finances end up wealthier than those who don’t. When you were a kid, keeping track of all of your money in a porcelain piggy bank was pretty easy. As we get older, though, our money becomes spread out across things like car payments, mortgages, retirement funds, taxes, and other investments and debts. All of these things make keeping track of our money a lot more complicated.

Some types of personal finance software can help make things a little less complicated, setting you up to meet financial goals and taking away some of the stress associated with money.

Even if you already have a Certified Financial Planner (CFP) some type of personal finance software can be of great benefit. Whereas CFPs focus on the big picture of your money, they don’t handle the day-to-day aspects that determine your overall financial health.

It’s also not nearly as complicated as you might think and can take out a lot of the tedium that comes with doing everything on an Excel spreadsheet or with a pad and pencil.

Types of Personal Finance Software

When it comes to personal finance software, it generally fits into two categories: tax preparation and money management.

Tax preparation software such as Turbo Tax and H&R Block’s software can help with everything from filing income taxes to IRS rules and regulations and even estate plans. Plus, there’s the benefit of filing online and getting your refund check a lot faster than if you were to mail off your forms after waiting in line at the post office.

For the purpose of this article, however, will be focusing more on the personal finance software that aids with money management.

Advertising

Money management personal finance software will help you to see the health of your cash flow, pay down debt, forecast for expenses and savings, track investments, pay bills, and do a host of other things that 30 years ago would have practically required a team of accountants.

When to Use Personal Finance Software

So far we’ve gone over what exactly personal finance software is and how it can be a benefit to your money. The next logical step in this whole equation is determining when it should be used and how is the best way to go about getting started using it.

Below are four of the most common and practical ways to use personal finance software. If all or any of these apply to you and your money, then downloading some type of personal finance software is going to be a smart move.

1. You Have Multiple Accounts

There’s a good chance that when it comes to your money, it’s in more than one place. Sure, you probably have a checking account, but you may also have a savings account, money market account, and retirement accounts such as an IRA or 401k.

If you’re like the average American, you probably have two to three credit cards as well. Fifty percent of Americans also don’t have loyalty to just one bank and spread their money across multiple banks.

Rather than spending hours typing in every detail of every account you have into a spreadsheet, many programs allow you to easily import your account information. This will help to eliminate any mistakes and give you a bird’s eye view of everything at once.

2. You Want to Automate Some or All of Your Payments

Please don’t say that you’re still writing out paper checks and dropping each bill in the mailbox. While it’s noble that you’re doing your part to keep postal workers employed, we’re 18 years into the 21st century and you can literally pay every bill online now.

Advertising

There’s no need to log into every account you have and type in your routing number either.

With personal finance software you can schedule automatic payments and transfers between all of your imported accounts. Automatic transfers will help to make sure you have the necessary funds in the right account to ensure all bills are paid on the appropriate date. Late fees are annoying and do nothing but cost you money. It’s time that you said goodbye to them once and for all.

3. You Need to Streamline Your Budget

Perhaps the best feature of personal finance software is that it allows you track everything going in and out of your virtual wallet.

Nearly every brand of personal finance software out there has easy-to-read graphs and charts that allow you track every cent you spend or earn, should you choose. You might be pretty amazed when you see just how much you spent on eating out last month or if you splurged a little more than you should have on Christmas gifts last year.

Every successful business on the planet has a budget and using personal finance software can help you trim the fat on your spending in ways that affect your everyday life.

4. You Have Specific Goals to Meet

Maybe it’s paying off debt or saving for up something like a European vacation. Whatever your financial goal is, whether it’s long-term or short-term, personal finance software programs are one of the savviest ways to go about reaching those goals.

You can do everything from set spending alerts to notify you when you’re over budget to automating what percentage of your paycheck goes to things like retirement investments. The personal finance software that you choose should show you exactly how close you are to hitting those goals at any given time.

Advertising

How to Get Started

From AceMoney to Mint and Quicken, there ’s no shortage of personal finance software apps out there. Many of these programs are free to download and will allow you to pay bills, invest, monitor your net worth and credit profile, and even get a loan with the swipe of a finger.

Other programs may only offer you limited services and will require a one-time fee or subscription to unlock all that they offer. These fees can often vary from as little as two dollars to 50 bucks a month.

It’s best to start off with the free version and then gauge whether you’re able to accomplish everything you’d like or if it’s worth exploring one of the paid options. Often times the subscription programs come with assistance from financial planning and investment experts — so that can be a real benefit.

When deciding which personal finance software program to use, it’s also important to look at how many accounts you wish to monitor. Certain programs limit the number of accounts you can add. Be sure that if you have checking, credit card, and investment accounts to monitor, that you choose a service that can monitor them all.

Finally, when looking around for the right personal finance software that meets your needs, make sure that you’re comfortable with the program’s interface. It shouldn’t be expected that you recognize every single feature instantly, but if the features don’t seem readable and manageable to you, then you’re not as likely to use it and get the full benefits.

Final Thoughts

Personal finance software can go a long way in helping you to take control of your money and meeting your financial goals. It’s important to note, however, that some focus more on budgeting and expense tracking while others prioritize investing portfolios and income taxes. Explore several different programs and read reviews to find the one that’s right for you.

In this day and age, managing one’s personal finances in a secure manner that allows the user to have a real-time visual representation of their money is easier than ever before. With the numerous applications that are out there — both free and subscription-based — there’s no reason that every person can’t take control of their money and ensure they’re making smart money moves.

Featured photo credit: rawpixel via unsplash.com

Read Next