Above: The Generic Credit Score Diagram

Having a good credit score can work in your favor and be a valuable money management tool. If however, your credit score is low, you could have problems achieving the financial goals you have set for yourself. So, let’s take a look at the ways you can improve your credit score so that any time you need to, you can buy that new car you have always wanted.

1. Correct Mistakes on your Credit Report: You can apply for a copy of your credit report from the national credit bureau once a year, and also before you apply for any finance so that you do not get any unexpected shocks. Then you check it from start to finish. Your credit score is based on what is in these reports so if there is a mistake it can affect the outcome if you are applying for finance. There might be a payment in the report that is listed as not being made in time. As insignificant as that sounds, it needs to be rectified and that can take anything from 30 days to 3 months.
2. Always Pay Accounts on Time: When you receive your accounts from your creditors, they always have a date by which payment should be made. You have to make sure that you pay on or before that date otherwise you will be penalized, and listed as an unreliable risk. Once again, if you are planning to purchase a house, in the months leading up to that purchase, do everything by the book as any late payment or missed payment will reflect very badly on you. If you missed a payment 2 or 3 years ago, that is not as important as missing one currently.
3. Keep your Credit Card Balances in Check: This is the most important part of your credit report – the percentage of what you owe on your credit cards in relation to your credit limit. Generally you should not owe more than 25% of your total credit limit. If you transfer credit card balances to one credit card account, it will not work in your favor – it will only increase the percentage of debt to your total limit. So rather pay it off as quickly as you can and keep the balances below the required 25%.
4. Keep Zero balance Accounts Open: If you have 4 credit card accounts but are only using two of them, don’t think it will help to close the other two. All that does is lower your balance to limit ratio as you have effectively reduced your total credit card limit. Also don’t open new accounts because obviously they will show no transactions and there no track record of regular payments.
5. Apply for a Small Loan you don’t really Need: No, it is not as stupid as it sounds! This can benefit you in the long run by giving you the opportunity to show the credit bureau how responsible you are by making timeous and regular payments on this loan every month. This reflects as positive activity on your record. And it is a different form of credit so it adds to the credit variations on your record.

There are numerous advantages to making the effort to improve your credit score. Next time you want to buy a big ticket item like a new car, and you have a perfect, blemish free credit

Setting up a budget is the first step to financial success

The first step towards financial freedom is creating a budget – how many times have you heard that and shrugged your shoulders? To illustrate just how important a budget is, look at what Oscar Wilde said, “When I was young I used to think that money was the most important thing in life; now that I am old, I know it is.” * He said this in the nineteenth century and it is even more relevant today in the twenty first century. So if you had any doubts at all about drawing up a spending plan, they should now all be swept away and you should be ready to listen to the different ways in which you can structure your budget. Once you have this under your belt, you can then look at putting together a yearly spending plan.

It goes without saying that you need all your bills, credit card statements and bank statements together in one place. Obviously you know what your income is, – but do you know what it is after your deductions for tax, medical care and insurances? Record your gross income without deductions and then your net income with deductions. Set up separate columns for all fixed monthly expenses – mortgage payments, car payments, utilities, cable TV, insurances and so on. Sometimes it is best to pay your insurances upfront every year, so remember to divide that figure by 12 months. Total it up and subtract it from your income. What is left is the money you have to spend on groceries, gas, entertainment and other products or activities. If this is a negative amount, then you have a problem – and that is why you need to develop a realistic budget. You need to seriously consider what you can do without – maybe cancel your cable TV or even consider moving to a cheaper house or apartment. Yes, you have to be that drastic otherwise reality will not hit you until you find yourself in line for debt counseling.

Now you have the basics set up for tracking your expenditure, keep on monitoring how much money you have left. You have to keep reminding yourself that your financial fitness depends on you only. You have to develop a lifestyle that fits in with your budget – not the other way around. You may have to adjust certain habits you have become used to as you start to realize how much they are costing you. And you need to take into account that groceries, clothes and miscellaneous expenses are going to vary each month – so make sure you have a slush fund that you can access when you need to. It is this pool of left over money that requires the greatest discipline because if you overspend here, then you are forced to use a credit card which creates more debt which costs you more interest which increases your credit card bill – and so you get caught up in the proverbial Catch-22 situation.

A way of dealing with this left over money is to divide it up into weekly amounts so you know what you have to spend each week. Or you can divide it up according to how you want to spend it – so much for clothes, so much for entertainment and so on. Keep yourself focused on the present and the reality of living within boundaries. Your budget needs to be re-evaluated every month or so until you get used to monitoring your expenses. Remember that you can only budget for money that you have coming in on a regular basis. You cannot budget for money that you are going to spend on credit because then you are asking for trouble. In the long run, a budget is actually saving you money. It is not a chore – it is a way of creating wealth.

Credit cards are the leading cause of short term debt...

Having a large amount of short-term debt can really cripple you financially, not to mention what it does to your state of mind. So it is in your best interest to try and find ways to deal with it reduce it and finally get rid of it completely. To start with, work out whether it is healthy or unhealthy debt. Healthy debt is worthwhile if it is for an asset and paid regularly, like your mortgage for example. You can also claim deductions from your income tax for ‘healthy’ debt. Unhealthy debt refers to things you have bought recklessly and which have no appreciation value – such as a ‘fly now pay later’ vacation or an unnecessary fancy new vehicle.

Here are 5 tips for you to put into practice to minimize your short term debt:

1. Be methodical about sorting through your debt and working out which one has to be paid off first. Usually this is the one with the highest interest rate which is not tax deductible. Credit cards are tempting to use to purchase big ticket items, and rarely are these items classified as assets. So, get into the habit of paying off your credit card bill in full every month. If you have more than one credit card, then you need to transfer the money owed on the highest interest bearing card to the one with the lowest interest rate;
2. Do not fall into the ‘minimum payment trap’. All this does is charge you more interest while spreading the debt over a longer time period. You might have more time to pay it off, but you are paying more interest too. This is not a bargain at all. It is a clever way for the company to make more money at your expense;
3. Do not buy on ’impulse’.  If you are on a diet, you are advised never to go grocery shopping when you are hungry – this is the same thing – do not go shopping unless you have a shopping list for necessity items. Or, wait another day or two till the impulsive urge subsides, then go shopping;
4. When paying off a short term debt, pay as much as you can off the debt amount every month.Pump any extra cash you may have into this account. Try not to go out for a meal every week – go every second week and put that money towards reducing your outstanding balance. You will be amazed at what a difference this can make as it also lessens the amount of interest charged;
5. Lastly, if your short term debt is rather high, then make a list of all your creditors and give them all a call. Explain your situation and how you plan to pay off what you owe. You will find that they are more than happy to talk to you and to assist you. It is much better for you to call them than to wait for them to demand the money from you.

While putting these tips into practice, it is essential that you are aware of what you are doing so that you never let yourself get into this kind of debt spiral again. Living in the twenty-first century is very challenging and sometimes you have no choice but to collect some short term debt along the way. That is ok – but make sure you manage it efficiently before it manages you. In the words of an experienced debt management attorney, always remember

“It is better to be owed, than to owe and be owned” – Rohan Lamprecht.

Money Saving Tip #1 – Stop Increasing Your Debt

The old saying ‘cash is king’ has never been truer than today. If you don’t have the ready cash, then don’t buy it. You have to start cultivating healthy spending habits.  If you usually whip out your credit card and gaily sign the slip without even looking at the price, then go shopping without your credit cards. Cut them up, lock them away, and don’t use them.

Step 1 - Get Rid Of Those Credit Cards...

Money Saving Tip #2 – Adjust Your Spending Pattern

Out of the Great Depression that America and the rest of the world suffered years ago came a new way of life and a changed attitude towards spending money – becoming ‘thrifty’ and being ‘frugal’ were the new watch words. Right now in the twenty first century, these words have come back to haunt us. Buy only what you need and not everything you want.

Money Saving Tip #3 – Spend Less Than You Earn

Most people spend more than they earn and that is why they use credit cards and soon find themselves in a crisis situation of unmanageable debt. This is one of the most difficult habits to break, especially when TV adverts and magazine adverts are continually advertising smart cars, fancy houses and dreamy vacations. Try this simple formula to help you keep a record of what you are spending: Income minus Expenses equals Remaining Balance. If you are lucky your remaining balance will be a positive one, but if it is negative, then you have a problem. Either you have to earn more or spend less. Both of these present their own set of problems, so maybe it is easier to simply cut back for a couple of months. Research shows that it takes 21 days to break a bad habit or to introduce a new habit. You have to decide what you are going to do here.

Money Saving Tip #4 –  Watch The Pennies

“Look after the pennies and the pounds will look after themselves” – how many times have you heard that saying? Well, it goes hand in hand with having a workable budget in place. And it is no use having a budget and not sticking to it because then you are defeating the object of the exercise in the first place. Try and split your purchases into ‘wants’ and ‘needs’ so that you can work out what is really necessary. When you see how much money all those little extras like magazines and takeaways cost you will be amazed – and maybe jolted into saving that money immediately!

Money Saving Tip #5 – Set realistic Goals

Setting a goal to save half your income every month is totally unrealistic. Setting a goal to have a certain amount saved by a certain time is realistic and attainable. Decide to give your children money for lunch at school once a week instead of three times a week – the other 4 days they can make their own nutritious lunch at home to take with them. After the first couple of weeks, you will start to see a pool of money building up and that will give you the confidence to carry on and set bigger financial goals.

Realistic goals should be Specific, Measurable, Attainable, Relevant & Time Bound (SMART).

While these are all simple savings strategies, they all contribute towards a healthier financial future for you and your family. From you setting the example, your children will learn to become equally disciplined. From simple beginnings, you can achieve great heights.