Your budget and credit score should be lifelong partners.
Credit that’s allowed to run amok can easily do so, but a sensible budget keeps an eye on your credit, and can even help you repair past damage.
You are entitled to a copy of your credit report from each of the three reporting agencies one a year.
This lets you see where you stand and discover problems such as inaccuracies that you can correct.
It also reveals what your creditors see when you apply for new credit, a new job, or even an apartment lease.
If your credit score leaves something to be desired, you are empowered to do something about it.
It takes time, but a healthy budget and determination to stick to it can lead to a score you’re proud for anyone to see.
Here are three ways to use your budget as a credit score-enhancing tool:
Mark or Update Due Dates for Each Recurring Payment
A long history of making payments on time is one of the building blocks of a strong credit score.
Eventually making a payment on a past-due account doesn’t clear the slate, even though the account is now current.
Bringing an account current puts you back in good standing, but documentation of late payments stays on your credit report for seven years.
A good budget doesn’t just show what you owe and keep your spending in check. It also reminds you of which bills are due when.
My FICO says on-time payments are crucial. Budget software takes this one step further.
Instead of relying on a calendar or sticky note, automated bill alerts from Mint.com send a text message, email, or both that give you a heads up well in advance.
Aim for Loan and Credit Card Debt that’s 20% or Less Than Your Income
On-time payments are good. They show that you are responsible and take care of your debts.
But your credit score is also partly determined by whether you have a reasonable amount of debt.
Bank of America recommends that a healthy budget devotes no more than 20 percent of your income to debt, not including your housing expenses such as rent or a mortgage.
With budget software, you can see your percentages in simple terms.
Conversely, avoid the temptation to do away with all debt, even if this seems like the pinnacle of financial responsibility. Having no open lines of credit is almost as bad as slow or late payments.
Your credit scores are based on how responsible you are with using credit. Without credit, there’s nothing to calculate, and you won’t have a good score.
Don’t Allow Old Accounts to Close
Paying off debt is a highly admirable goal, and one that sometimes takes years to accomplish. But once a credit card is paid off, you should keep it, not close it.
Your credit score is also partly determined by the length of time you’ve had open lines of credit.
If you close accounts as soon as they’re paid off, you’re losing the value of long-term financial responsibility on your credit report.
Keep those paid off credit cards and use them occasionally, recommends Bank of America. Pay them off regularly (a good plan is paying them off each time they’re used), but never let them go away.
You don’t need to keep every credit card, but having at least one that you’ve had for years helps build your history.
Your budget can show if you’ve got a little extra money to spend. When that happens, you can comfortably use an old credit card and pay it right off without feeling a pinch.
Credit scores don’t increase quickly, but every good decision that you make leads to a better and better score. Your budget is the plan that helps you achieve that goal.
Sign up for a free Mint.com account today and let a budget help you build a better, healthier credit score.
Mary Hiers is a personal finance writer who helps people earn more and spend less.