One of the biggest mistakes that people make when it comes to their credit is that they don’t fully consider “the future”. More to the point, most people only consider whether credit score is “now” when they are thinking about getting a mortgage, a student loan or car loan and don’t consider what those loans will do to their credit score in the next time they need it.
For example, a person that’s recently graduated from college might be focusing on their credit score as it looks today because they want to rent an apartment or get a new car. Thus they fail to consider what that will do to their credit when it comes time to purchase a new home. The same thing goes for a couple that is purchasing a new home and doesn’t consider that it might not be big enough for the family they plan on having in 10 years. What all of this points to is the fact that having a long-term plan for your credit is vital.
With that in mind we put together a blog today about how to create a 10 year plan for your credit that will help you in a myriad of financial ways. Enjoy.
- Start Today. Here’s the thing; you can actually start your tenure credit plan at any time that you wish. This isn’t something that’s strictly for young adults and, even if you’ve had a major financial problem like a bankruptcy, you can put together a 10 year credit plan at any time you want to establish some long-term goals for your credit. If you have just been through a bankruptcy but you do this today, once you are finally able to get credit again you’ll be in much better shape, financially speaking.
- Make a list of your biggest financial goals and dreams as well as the type of credit you’ll need to make them happen. Let’s say you’re planning to buy a new home in the next 10 years or a new car in the next 3. More than likely you’re going to need a loan to make those purchases and, if you list them all out ahead of time and have plans for what your credit score will need to be when you make those purchases, you’ll have not only a reminder sheet but something that will motivate you to keep your credit, and your credit score, looking good.
- Build your goals around specific credit factors. Instead of making goals based on your credit score alone, you can focus your short and long-term actions by putting together short and long-term goals based on factors that can greatly influence your credit score. For example;
- Credit mix. Getting a new credit account or other loan that you pay off and pay completely every month to build your credit
- On-time payments. Make sure to pay off all of your loan payments on time, every time.
- Utilization ratio. Do your best to pay down any loans so that, in 10 years, you can be within 20% of your credit limit
- Make short-term goals to pay off outstanding debts
- Set up a calendar with Important Dates. A 10 year plan is a long-term plan and, in many cases, life will tend to make you either forget or ignore those plans unless you give yourself a “reminder” or two (or as many as you need) to keep on track. Checking all of your actions based on your goals is vital as well as checking your credit report at least once a year, if not more. Since you’re entitled to a free credit report once a year from the “Big 3” credit reporting agencies, this really shouldn’t be a problem. Doing this will allow you to make sure that your credit scores are staying high, where they should be, and that there are no mistakes, errors or signs of identity theft in your report.
Once you’ve set up your 10 year plan you definitely should go back, revisit all of the major things on your list and update them as you see fit. You should do this at least once a year and, even better, you should do it every time you get your credit reports so that you can do it all at the same time. While it’s certainly important to make sure that your credit is good “right now”, having a 10 year plan will allow you to make sure that your credit stays high, your credit report is always excellent and you are financial foundations are strong.