When you borrow money today that you can’t pay back easily, you are essentially robbing your future-self of desperately needed funds.
This is not judgment but a sad reality. Too many Americans depend upon the perpetuation of debt as a form of income flow.
The average credit score in America is 711, which is considered good. The higher your credit score, the less likely you will be considered a credit risk.
Any credit score under 580 is considered poor. A bad credit score will severely limit where you can live, loan options and other financial choices in life.
Here are five things you can do if your credit score is below 500.
Make a budget
Financial literacy is a skill that is perfected over time. Most people with money problems don’t keep track of their income, debts, bills, and expenses.
If your credit score is under 500, start making a budget.
Keep a weekly and monthly record of your income, expenses, and debts. After reviewing a budget, you may learn if you are spending money on unnecessary things. A budget can also help you learn to save for future financial goals.
Starting a budget can be intimidating, so start slow. Start with a spending diary. Spend a week logging every purchase you make and then review it.
Develop a debt repayment plan
The best way to rehabilitate your credit score is to get control of your debt and then in a perfect world eliminate it altogether. Create a debt repayment plan.
Prioritize which credit cards you will pay off first based on the cards with the highest outstanding balances and interest rates.
If you don’t reverse your debt spiral with a realistic plan, your credit score will never increase.
Stop using credit cards
Stop using your credit cards. Give yourself a chance to pay off the debt that you owe.
Put them away, hide them from yourself, freeze them in a block of ice — whatever it takes. But don’t close existing cards if possible. Your credit score is based in part on how much credit you have and don’t use, and how old it is.
Don’t apply for new credit cards
If you have bad credit and apply for new credit the potential lender will perform a “hard inquiry.” A hard inquiry is a complete review of your credit history.
And the more you apply for new credit, the more desperate and riskier you’ll look like an applicant.
If a hard inquiry is performed and you already have a bad score, it could decrease by at least five points.
Use a secured credit card if necessary
A deposit is required to create a credit line with a secured credit card. Use it sparingly and pay bills on time and in full.
Your use of a secured card will rehab your credit score over time and show improving financial responsibility.