[Y]ou may wonder how your budget decisions can impact your credit score, especially since your bank information is not included in your credit report. The fact is that one decision often affects another one. In the case of your credit, if you make mistakes with your budget, the first place you are going to pull money is from your credit cards. The first bill that often goes without being paid is the credit card bill. To avoid the repercussions that come from these decisions, you have to avoid making mistakes with your budget.
1. Not Having a Budget
The first detriment to your credit rating is not having a budget at all. It not only tells you where your money is going, but ensures that you have enough to pay all of your bills on time. There are a lot of places you can go to learn how to create a budget. In fact, many online resources even help you with the task.
2. Having a Budget That is Too Rigid
If you have a budget but it is not realistic, you are no better off than not having one at all. You must be allow room for unplanned expenses as well as a few “fun expenses” along the way. A budget that doesn’t have room for your morning coffee or Friday night dinners is less likely to be successful. You may have to make some compromises such as pizza instead of a five-star restaurant, but it is important to be practical.
3. No Emergency Fund
You are setting yourself up for failure if you don’t have an emergency fund. When something unexpected comes up, you have to pull from your budget if you don’t have a savings account. Set small goals to begin with like saving $100, then $500, and then $1000.
Avoiding these mistakes helps your credit in two ways. First, you avoid being late on your payments because you have the money to pay your bills. Second, you don’t have to borrow from your available credit limit to pay for something unexpected. Since credit utilization impacts your credit score, it is also important. Understand budgeting and you will be on your way to having good credit and all that it brings.
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