Credit Counseling Tips

By First Financial Bank
What is it to be “creditworthy” – and why is it essential for you? And if your credit history is not quite up to par, what can you do to improve it? Check out these credit counseling tips.

To paraphrase the Oxford Dictionary, the definition of being “creditworthy” is a person or company who is trusted to receive credit because they’ve shown by past behavior that they will pay it back. Sounds straightforward, but it takes work to attain and maintain creditworthiness. Whether you are an individual or a business, you will probably need “good credit” to establish a place to live, get hired for a job, launch a new business – or acquire a loan to support your other personal or professional goals. Where do you begin?

Start by Learning What is in Your Credit History

Your personal credit history is collected, scored, and shared by the three credit reporting agencies, Equifax, Experian, and TransUnion. They receive data from your creditors and update your records accordingly. They reflect your credit behavior, including whether your bills were paid on time, payments were late or sent to collections, if you defaulted on a debt – or if you declared bankruptcy. Your report includes personal information about you, and you may be surprised to learn who has inquired about your credit history.

It’s important to check regularly to see what has been reported. Mistakes happen, and you’ll want to work through the agency’s dispute process to get any errors or outdated information corrected.

Also, it’s important to identify any potential fraud or identity theft. Unfortunately, it happens too often, with approximately 1/3 of all Americans having been a victim of identity theft. If you are concerned that someone may have stolen your identity, you’ll want to follow these steps from IdentityTheft.gov to report it and begin recovering.

You are eligible to receive a free credit report each year, so take advantage of it. You can’t manage your credit if you aren’t monitoring it.

Improve Your Credit Behavior

But what if your credit report is accurate – yet not stellar? Then it is time to blaze a new financial path for yourself. Here are some of our favorite credit counseling tips.

Document Your Current Finances

Understanding how much money is coming into and out of your household each month – and how that fits into your overall financial picture – allows you to make better choices:

  • How much money are you bringing in every month from your job(s)? Do you have other sources of income?
  • How much are your housing expenses (rent/mortgage, taxes, insurance, etc.)? If you have a mortgage, how much do you still owe overall? Do you have any equity?
  • What are your healthcare costs (insurance, deductibles, co-pays, etc.)?
  • What are your other regular bills (utilities, cable, transportation, etc.)?
  • What loan or credit card payments do you have? What do you owe on them overall?
  • What are the interest rates and terms for any mortgage, loan, or credit card?
  • What else are you spending money on every day/week/month/year?

You’ll want to document everything you spend to understand where your money is truly going. Whether you do it analog in a small notebook or use an app on your phone, tracking can provide insights into your spending behavior you may not get otherwise. You’ll want to evaluate the pattern of your spending to see how much is truly “essential” (for example, your rent or mortgage) vs. optional (that new sports and entertainment streaming service or steakhouse dinner).

Build a Budget Based on Reality

Once you understand exactly where your money is going, you can build a realistic budget. This includes:

  • Allotting for the true essentials: food, shelter, healthcare
  • Paying the commitments you’ve made to creditors: loans, credit cards
  • Identifying what else is important to plan for in your family’s budget: savings for education, an important family event, supporting a charity, or creating an emergency fund.
  • Determining what to cut from your spending plans: late fees, restaurant meals, etc.
Now look at how much comes in and how much must go out. It’s time to put it all together – and take action.

Staying on Budget

Does your budget tell you that you have more commitments than cash? Then it’s time to revisit where you are spending your money to see if any “extras” could be scaled back. Some of the things you should consider:

  • Eliminate paying fees on your bills or additional interest on credit cards because of late/missed payments. Set aside the money for those payments out of your paycheck first and schedule them to be automatically paid to ensure they arrive on time. “As a farmer or business owner, running up credit card balances for operating costs is never a good idea unless you plan to pay those in full at the end of the month. Most credit cards carry a higher interest rate than getting an operating loan at the bank. If you are struggling to get an operating loan for some reason, consider vendor financing instead.”, stated Kathy Daily, Managing Director of FFB Farm & Ranch Division.
  • If you are budgeting for a family, look for “economies of scale”. For example, is there an opportunity to take advantage of a family plan for phones or auto insurance?
  • Find alternatives to some of your essentials. If you have multiple instances of cable television in your household, is it time to “cut the cord” and just pay for internet with a streaming service? Can you reduce the number of cars in your household by carpooling to work or school with neighbors/coworkers?
  • Stop using your credit cards until they are paid off. If you are falling behind, with more debt piling up, put those cards away until you get the balances paid off. Then only use what you can pay off immediately.

Get Ahead

Have more money coming in than going out? Great! Some options for that money:

  • Build an emergency fund.
  • Expand your business.
  • Look at your current debts incurring interest. If you’ve got a high-interest credit card, pay down (or pay off) the balance. Pay down the principal on one of your loans.

With insights into your spending and a plan for ensuring your financial commitments are met consistently, you are on your way to becoming more “creditworthy” – and working towards achieving your personal and professional goals.

Want to chat about your goals? Let’s chat!

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