January 1 may be the magical date for kicking bad habits, but if adopting good financial ones is on your 2009 to-do list, consider April 15 as Fiscal New Year's Day.
"A lot of people are going to be getting tax refunds they can use to take a big step forward," says Certified Financial Planner Ken Clark and author of The Complete Idiot's Guide to Getting Out of Debt. With tax day approaching, here are 10 ways to raise your credit score, rein in spending, and boost your savings account:
1. Check your credit report for errors. A mistake on your credit report may unfairly lower your credit rating. The result? Higher interest rates, for one thing. A poor credit score may also affect your ability to rent an apartment, lease a car or even get a job. Review the information on your credit report carefully, and take action to correct any errors. Under the Fair Credit Reporting Act, credit bureaus must investigate any disputed items and remove them from the credit report if they cannot be verified. If you disagree with the results of a credit bureau's investigation, be proactive and ask to have a statement of dispute included in your file.
2. Don't max out your credit cards. Credit utilization – the percentage of credit you're using – is a major factor in determining your credit score. Lenders like to see you have lots of available credit, but if you're at your credit card limits, you'll lose points on your credit score. "That trips people up a lot," says Clark. "It accounts for 30 percent of your score." Set a goal to have your percentage utilization at no more than 35 percent. In other words, if you have a credit limit of $10,000, you should have a balance of no more than $3,500. To that end, it's better to have two credit cards that have available credit than just one card that's maxed out.
3. Pay your bills on time. Perhaps a no-brainer, but paying bills on time demonstrates your creditworthiness. Conversely, a history of late payments can severely impact your credit score. Even a couple of late payments here and there can be a big deal. If you're forgetful, consider automating the process by having payments taken automatically from your checking or savings account. Or arrange to make payments online in order to avoid any mail mishaps.
4. Keep your oldest credit Cards. The longer you hold on to a particular credit card, the more history you have to show. Keep your longtime accounts in good standing. If you're going to cancel cards, start with the ones you've opened up most recently, says Clark.
5. Need it? Save for it. Create a household budget, and plan for the unexpected. Build in reserves for car repairs, root canal emergencies and seasonal expenses like birthday gifts and holiday celebrations, so you don't wind up charging those expenses and then overextending yourself on credit. It's the unplanned outlays that turn into budget busters. "Don't wait until you pay your debt off before you start saving," cautions Sandra Shore, senior counselor at Novadebt, a non-profit credit counseling agency. "You need to have an emergency fund. There's always going to be a rainy day, and you need to have an umbrella."
6. Pay yourself first. Consider yourself a creditor, and get into a routine of writing a check to yourself first when paying bills, says Shore. Even $20 a paycheck will get you into a good habit. If you wait until the end of the month to see what's left over for savings, you'll usually find the coffers empty.
7. Set achievable goals. "Everyone should have financial goals and every goal should have a specific date," advises Shore. Don't just tell yourself you want to pay off your credit card debt or save for a house. Give yourself a timeline. Open-ended targets usually fail. Calculate how much extra you can reasonably afford to allocate each month toward your objective, and that will determine how long it'll take to achieve your goal.
8. Pay half as much, twice as often: Want to pay your mortgage or car off faster and save thousands in interest? Pay in bi-weekly installments rather than monthly. That adds up to an extra payment a year, says Shore. "The timing fits better, too, because most people get paid every two weeks. Once you make the arrangement, you don't even have to think about it. And you'll get out of debt years sooner."
9. Keep your budgeting simple. Intricate spreadsheets and complicated budget management software don't necessarily add up to greater savings. If you make a system too complex, it becomes unworkable, warns Clark. "We delude ourselves into thinking we're making progress on our finances by spending a lot time on elaborate systems when, in reality, we just need a simple system that helps us control our variable spending." Simple ledgers or easy-to-complete templates can be just as effective in keeping you on track.
10. Give yourself an allowance. Cash your paycheck, and that big fat lump sum gives you "a false sense" of how much money is actually available, says Clark. A better idea? Set up a separate spending account with a pre-set amount each month exclusively for the hard-to-track expenses—lunches out, boys' night out, the extra toys for the kids. If you put, say, $300 into the account at the beginning of each month and whittle away at that, you'll have a barometer of how the money is flowing out for the random expenses. "Then the only number you have to keep track of is zero," Clark says. And when you hit zero, that means no more lattes.