How Building a Financial Plan in 2020 Can Help You Improve Your Credit
For most of us, the New Year represents an opportunity to wipe the slate clean and start fresh. We get a boost of motivation to improve in different areas of our lives, from our health and fitness to our productivity and finances. If you’re someone who is focusing on improving your credit this year, setting up a financial plan may be a smart move.
How Can a Financial Plan Help Improve My Credit?
A financial plan should cover all aspects of your financial life, including savings, debts, investments, insurance and more. A good financial plan will give you a clear direction for setting and prioritizing your financial goals and mapping out clear strategies for achieving them.
Whether you’re doing it yourself or teaming up with a professional financial planner, taking time to review your finances and set up a budget, savings and/or debt consolidation plan for the year is a good starting point.
How Do I Set Up a Financial Plan?
- Review your credit history
Because your credit history is based in part on the amount of credit you’ve borrowed and paid back over time, reviewing your credit history is a good place to start when putting together your financial plan.
You can do this by checking your credit report, which is available for free once every 12 months through the three major credit bureaus: Equifax, Experian and TransUnion. Checking your credit report will give you a better idea of what may be impacting your credit and what you can do to improve it. Something as simple as fixing errors found in your credit report can make a difference in your credit score.
- List your financial goals
Writing out a list of your financial goals may be a good starting point for your financial plan. What would you like to accomplish with your finances this year? Are you saving for a new home or car? Tackling your debt? Investing? All of the above?
Whatever the case may be, writing down your financial goals for the year is a good way to start setting your priorities and holding yourself accountable. When setting your goals, you want to make sure they are specific, measurable, attainable/achievable, realistic and timely (SMART).
- Set up a budget and bill payment schedule
Once you’ve established your financial goals for the year, it’s time to take action. Evaluating all of your expenses (i.e. mortgage, car payment, utilities, gas, cable/Internet, etc.) and setting a monthly budget will give you a clear picture of how much money you have to cover your household expenses and how much you have left over (aka your discretionary income) to allocate towards saving, investing and/or paying down debt.
Making on-time payments on your car, mortgage and other bills can help improve your credit. To stay on top of your payments, you can set up automatic payments and/or electronic bill payment reminders.
- Tackle your debt
Since your credit history is based in part on the amount of debt you’ve accumulated over time, paying down debt is a good way to improve your credit. If your goal is to pay off your car, house, credit cards or student loans, you can set up a plan to use a portion of your discretionary income to consistently allocate towards your debt.
- Grow your savings
Although saving money doesn’t directly impact your credit, building a nest egg for emergencies and/or a down payment on a car or home can help you become less dependent on borrowing money. Also, the more money you have saved up to put towards a down payment on a car or home, the more likely you are to qualify for lower monthly payments.
Is buying a car and improving your credit part of your financial goals this year?
If you’re currently in the market to purchase a vehicle and need help getting approved for auto financing, a car dealer enrolled in the Credit Acceptance program can help. Simply fill out the Start Your Credit Approval form on our website to get connected with three enrolled dealers near you!
