If you’re someone who has a history of bad credit, setting up a
budget may be a wise move for you financially and may help you get on
the path to improving your credit.
What Is Budgeting and Why Is It Important?
A budget is a powerful tool used to track your
income and expenses, monitor your spending, and build your savings.
Budgeting is important because it puts you in control of your finances
by enabling you to set financial goals, manage your finances to meet
said goals, and avoid financial pitfalls along the way.
A significant number of American households don’t have a budget or
savings plan in place. According to a Debt.com survey, 33 percent of
families are not on a budget. In addition, a 2017 GOBankingRates
survey found that less than half of Americans have $1,000 in savings.
Putting together a budget for your household puts you in a better
position to build savings and prevent overspending.
How Can Budgeting Improve My Credit?
Budgeting gives you a clear understanding of what you can or can’t
afford. Operating on a budget makes you more financially disciplined
and less likely to overspend, which is how many people get caught in
the bad credit cycle. You can improve your credit
through budgeting by:
Outlining your bill due dates A proper budget should outline the exact dates that all of
your bills are due (i.e. mortgage or rent, car payment, insurance,
credit cards, utilities, cable, etc.). Since making on-time bill
payments can improve your credit history, setting reminders and
keeping an itemized bill payment schedule as part of your budget
plan can help you avoid late or missed payments.
Reducing frivolous spending Spending beyond your means is a surefire way to accumulate
debt and fall into the bad credit trap. One of the first things you
want to do when setting up a budget is subtract all of your
recurring expenses from your monthly earnings. The number you end up
with should be a positive value. If it winds up being less than
zero, you may be overspending. Setting spending limits can be an
effective way to prevent overspending and have money left to
allocate towards paying down debt, saving and/or investing.
Paying down your debts Once all of your monthly expenses are accounted for, you can
allocate a portion of your discretionary income (money you have left
over) towards any outstanding debt you may have (i.e. credit cards,
student loans, etc.). Incorporating a debt payoff plan into your
budget may improve your credit history because it allows you to put
money towards paying off debt balances that may be impacting your
Increasing your savings Allocating a portion of your discretionary income towards
building up your savings can also help improve your credit. Having
money stashed away for a “rainy day” or a down payment on a car or
home makes you less likely to need to borrow money for a purchase.
If you don’t already have a savings account, setting one up is a
good step towards financial well-being. There are some banks that
only require a minimum of $25 to open a savings account and some
don’t have any minimum requirement at all. The key is to make sure
you’re saving something from every paycheck.
If you’re on a journey to improving your credit and are in the
market to purchase a vehicle, a dealer enrolled in the Credit
Acceptance auto finance program can help you get approved for vehicle
financing. Simply fill out the Start Your Credit Approval form on our
website and get connected with three of our enrolled dealers near you
to get started!