Automatic Rent Payments
by Electronic Check or Credit Card

Your credit score is evaluated based on these 5 categories:

• Payment history – 35%
• Total amounts owed – 30%
• Length of credit history – 15%
• New credit – 10%
• Types of credit used – 10%

Here are some tips to raise your credit score based on the 5 main categories that are used above.

Pay your bills on time

Your recent payment history is considered as more important than what happened four to seven years ago so it is important to start a habit of paying your bills on time and stick with it. What is considered as late payment? When you wait to pay bills for 30 days or more companies can report you to the credit bureaus for late payment and this negative information can remain on your credit history for seven years.

One step you can take is to set up a personal budget to make sure you alot enough of your income to pay your bills each month. Another step is to set up automatic payment for as many of your bills as your can such as your rent, utilities, phone bill, etc. That way you don’t have to worry about whether you are late or not each month. If you have medical bills, negotiate a repayment schedule that works for you and pay that down on time.

Lower the amount owed on credit cards

Credit cards are not free money. You have to pay it back so don’t run up large credit card bills. That has a very negative impact on your credit score. Credit card companies report the amount you owe each month and it does not reflect favorably on your credit score when your credit cards are maxed out to their limit. Work at paying down your credit card balances so you are only using a portion of your credit limit. This will increase your credit score.

Applying for multiple credit cards at once to increase your credit limit will have a negative impact on your credit score. It is better to do without and pay down existing credit cards. Remember the addage: Use it up, wear it out, make it do or do without!

Keep old credit card accounts open

When you pay a credit card down and don’t want to use it anymore, it will help your credit score to leave that account open. Just put that card away in a secure place. This old account will add to your lenght of credit history and improve your credit score.

Only open new accounts that you need

In department stores, you are often asked if you want to open a credit account for their store. As an incentive they may offer you a discount. Remember that too many new accounts can hurt your credit score. Keep the number of cards that you use to a manageable minimum. Tell the clerk, “No thank you, I am protecting my credit score!”

Manage the accounts you have well

Show that you can manage the credit cards and loans that you have responsibly. That is what creditors want to see when they are looking at your ability to pay a home or car loan.

A variable expense fluctuates and is not usually a monthly expense, but comes often at unforeseen times and can stress your monthly budget. People often end up putting variable expenses on credit cards which can get them into trouble when they start piling up. Variable expenses include clothing, visits to the doctor or dentist, automobile maintenance, vacations, gifts for friends or family, and so on. These types of expenses can be difficult to get a handle on.

Here is a practical way to approach budgeting your variable expenses. Estimate what you might spend in a year for each variable category, add them up, then average that amount over 12 months. Let’s say your variable expenses average out to $300 per month. Begin setting aside this amount each month because you may have several good months with very low expenses and then get hit hard at Christmas or in the summer.

Second, you will have to set priorities. If you find out your car needs new brakes and that eats up your $300 variable expense budget for this month, then put off buying clothes or a making a trip till you have a chance to recover and build up your variable expense reserves again.

When you get to the end of a year, look at all your variable expenses and see how close you were with your budget. If necessary, adjust the amount you set aside for variable expenses and put off the things that are not as important.

There are free budgeting spreadsheets and software that have all 12 months of the year included. If you prefer this method, you can write in amounts for expenses that come in different months. Choose the method that suits you best.

One of the first steps in setting up a budget is to determine whether an expense is fixed or variable. If you get a bill every month, that is the easiest way to determine your fixed expenses. These would be expenses like rent, student loan, car payment, phone bill, insurance, internet, cable or satellite TV, and so on.

Some fixed expenses have a variable amount in them. One example would be if you go over your allotted minutes on your cell phone, the fees for additional minutes can be fairly hefty. I have unlimited minutes on weekends so I have disciplined myself to make calls to family and friends at that time.

Many consider food to be a variable expense. If this is the case for you, choose an average monthly amount and try to stay around that budget. I grew up in a home with 10 kids and we ate at home 95% of the time and to go out was a special treat. Our food budget was fairly fixed. However, when you start going out to eat more often, your food budget can get out of control. To keep your food budget steady, decide how often you will go out: once or twice or week let’s say and plan on preparing meals the rest of the time. Also, when you go grocery shopping, have an amount fixed in your brain. If your food budget is $80 per week, stay within that and leave the extra goodies and treats on the shelf.

Another expense normally classified as a variable expense is your heating bill, especially if you live in a northern state with colder winters. One way to balance out your heat payments is to set up a balanced payment plan with your utility company. This averages out your monthly payments so you really are paying a more fixed amount every month instead of large bills in the winter. Another approach is to rent an apartment that has heat or all utilities paid. Here the landlord knows the basic costs and has included them in your rent.

These are all ways to stabilize or fix your expenses so you don’t get surprised on some months and end up spending too much. Now it is time to get these expenses written down somewhere. We have given you a list of free budgeting spreadsheets and software in our resources section. Choose one that you like and get your fixed expenses entered into your budget.

We live in a culture that says, “Buy what you want now and worry about paying for it later.” This does not lead to happiness or freedom. Instead, it adds to your stress and causes you nothing but worry in the long run. I have found that you have to start by living within your means, then you will have something leftover to invest with. How you invest your extra time and talent will lead to your financial freedom.

So let’s start with financial discipline. Have you ever sat down and drawn a line down the middle of a piece of paper, then put what you make on one side and what you spend per month on the other? That is how you begin to create a personal budget and get a handle on your finances. If you are spending too much or have nothing left to invest, what can you give up each month?

You have to be willing to sacrifice something now to get something  better for  yourself or your family in the future. You can spend the extra time researching or studying new skills you want to learn. Invest your time researching needs and put together a personal business plan you can start on the side that will meet those needs. It’s best if you work on something you are familiar with.

We’ve put together a resource page that includes a list of free spreadsheets and software that you can use to create a personal budget. Start here, cut your expenses, invest in study and research, and you can get started on the road to financial freedom.