Do your goals include buying a home, getting a car or apartment, or simply managing your money better? We’ll help you get started with a seven-part financial boot camp to build your credit muscle and put you on track to financial health.
Part 1: Establish a baseline
Just as most trainers will run you through a few exercises to see where you’re strong and where you need to improve, we’ll walk you through how to evaluate your current financial state (and possibly catch a few mistakes in the process).
Exercise 1: Check your credit report for errors
You’re entitled to get a free credit report once a year from each of the three major credit bureaus. While this won’t give you your credit score, taking a look will help you understand why your credit score is what it is. It can also help you find mistakes or even identity theft. If you want to go one step deeper, check your credit score for free.
Exercise 2: See where your money’s going
If you always find yourself in the red at the end of the month, the new year is a perfect time to take stock of where you spend the most. Once you know which areas are taking up too much of your paycheck — whether it’s medical bills, auto insurance or just plain food — you can start looking for ways to lower your expenses.
Part 2: Quick fixes
These small, easy things can make a big difference in your financial well-being.
Exercise 3: Consider lowering your interest rates
If you’re paying through the nose on credit card interest rates, think about getting a balance transfer credit card, which will allow you to move your existing credit card debt onto a card that has 0% APR for several months. You can use this time to pay off that debt without the interest racking up.
Exercise 4: Set up low-balance and over-the-limit alerts
Missed payments and using up too much of your available credit are two major potential dings on your credit score. In order to make sure you have enough money in your checking account to pay your bills, and that you aren’t putting too much money on your credit cards, consider signing up for alerts through your bank or a service like Mint.com. Set up alerts to warn when your credit utilization ratio is nearing 30% or when your checking account balance dips below a preset limit.
Part 3: Stamina
Here are some ways to maintain your financial fitness with as little effort on your part as possible.
Exercise 5: Set up automatic bill payments
As we said above, one surefire way to hurt your credit score is to let payments go overdue. To avoid this, set up automatic payments whenever possible. It’s easy to let things slip through the cracks, so the fewer things you have to actively keep track of, the better.
Exercise 6: Make monthly transfers to an account dedicated to debt payoff
If you find yourself splurging on impulse purchases rather than paying off your debts, think about opening a separate checking account dedicated to that goal. Then, set up automatic transfers from your primary checking account as soon as your paycheck is deposited. That way, you’ll have the money set aside when it comes time to pay your bills. By paying off your debts, you’ll lower your credit utilization ratio and improve your credit score.
Exercise 7: Set up small payments on lesser-used credit cards
Finally, one sometimes overlooked factor in credit scoring is the number and average age of open accounts. Even if you don’t actively use them, keeping no-fee credit cards active and open will boost your credit score without incurring annual fees. However, if you go too long without making purchases, the bank might close your account due to inactivity. To ensure that they’re kept open, set up small recurring payments from your unused credit cards (but be sure to set up automatic bill pay for these as well, so you don’t forget that you’ve incurred a balance).
This article was updated Sept. 30, 2016.