Getting grounded financially is a necessary step toward financial independence. To begin, you must know where you stand financially, especially in areas you may have been avoiding.
Here are a few suggestions to help you to become grounded financially.
1. It is imperative that you check your credit report regularly and review it for accuracy. According to Equifax, “By law, you are allowed to get one free copy of your credit report every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com.”
You can do this online or by calling (877) 322-8228 or mailing Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The three credit agencies are Equifax, Experian, and TransUnion. Each agency may list different information, so you must look at your credit report from each.
There are other websites that can assist in obtaining the credit reports from all three agencies, and most will charge a fee to disclose your FICO score. It is not necessary to know your FICO score when reviewing the accuracy of the credit report; however, some people enjoy seeing their credit score improve with all of their efforts to transform their financial lives. (Some credit card companies will list your FICO score automatically on your monthly statement for free.
2. If you see any items on your credit report that are not yours, dispute them with each credit bureau that lists the item. You may dispute items online easily or you may write a letter to each agency listing that item. If the credit agency determines the item is not yours, they will remove it.
3. Catch up on any payments you are behind on.
4. Pay your bills automatically and use your budget spreadsheet to ensure all the payments are being processed. If you don’t want to pay bills automatically, then set up payment reminders, write the due dates on the calendar, or review your budget spreadsheet weekly. The longer you go without missing a payment, the better your credit score will be.
5. If your primary goal is to improve your credit score, the typical recommendation is to pay down your credit card balances to reflect less than 30% of the available credit. As Experian explains, “In a FICO Score or score by VantageScore, it is commonly recommended to keep your total credit utilization rate below 30%.” Generally, a lower your utilization rate is better for your credit score. VantageScore recommends an overall utilization rate of no more than 30 percent. However, the lower your utilization ratio, the better for your credit scores.
6. When you pay off credit cards, you may want to keep the oldest accounts open since credit bureaus often like to see a long credit history.
7. Don’t open credit accounts you don’t need (if you can avoid it). Generally, too much available credit will lower the amount a lender will approve when you do have a need.
References and Further Reading
Equifax. (2019). How Do I Get My Free Credit Report?
https://www.equifax.com/personal/education/credit/report/how-to-get-your-free-credit-report/
Experian. (2019). What is a Credit Utilization Rate?
https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/
