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 Mistakes happen, and you’ll want to work through the agency’s dispute process to get any errors or outdated information corrected.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.