 TITLE: How Budgeting Can Help You Improve Your Credit Score CONTENT: Creating a budget and sticking to it can have an indirect positive impact on your credit in several ways. Budgeting can help you:\n*   **Stay current on your bill payments.** Following a budget can help make sure you don't run out of money by the time bill payments are due. Late and missed payments can result in penalties and fees that will only add to your financial strain. Not only that, your creditors can also report delinquent accounts to the credit bureaus (Experian, TransUnion and Equifax) once they are 30 days past due or later. Payment history is the most important factor in your credit scores. A late payment, and the resulting negative mark on your credit report, can do significant damage to your credit scores.\n*   **Reduce your reliance on credit.** If you find yourself resorting to credit cards to hold you over until you get paid again, you might end up carrying a high balance on your cards. Overcharging can increase your credit utilization, which is the second most important factor in your credit scores. The closer your card balances get to their max, the more your score is impacted. Keeping your balance under 30% of your credit limit on each card helps prevent credit harm, but the lower, the better. Maintaining a budget can help you make sure there's enough money set aside to cover your bills, and prevent you from swiping a credit card in the first place.\n*   **Pay down your debt.** If you've already built up large debts from credit cards and other debt, budgeting can help you bring them down to size. Owing a lot of debt can not only impact your credit utilization, but can make it harder to make at least the minimum payment toward what you owe. Do you want to get out of debt? Include debt payments in your budget so you can easily track your progress and stay the course until you meet your goal. To pay down your debts quickly, explore the snowball method or avalanche method for repaying debts.\nWondering how much of an impact budgeting will have on your credit? It depends on your credit history and financial situation. If you're already managing your debts responsibly, creating a budget might not make much difference in the short term. However, budgeting can help make sure you continue to properly manage your finances, and make it more likely you can maintain a good credit score or improve it.  \nAdditional Benefits of Having a Budget\n--------------------------------------\nBeyond helping boost your credit score, there are other perks to having a budget. Here are a few additional benefits:\n*   **It can help you reach financial goals faster.** A budget is so much more than a plan to ensure you pay bills on time and avoid overspending. It's also a tool you can use to help reach financial goals faster, like saving for retirement or for a down payment on a home or car.\n*   **It can help you create an emergency fund.** Many Americans don't have enough set aside to cover an unplanned expense of $400 or more. Emergency expenses can easily lead to more debt, and less financial stability. Budgeting makes it easier to build an emergency fund that can help protect you when the unexpected happens. You can budget the amount you want to save each month until your stash is fully funded with at least three to six months' worth of living expenses.\n*   **It can help you plan for retirement.** You may find building your nest egg to be quite the challenge without a budget, particularly if you're only making contributions if you have enough to do so after your other expenses. However, you can use a budget to determine how much you can realistically save for retirement each month and stick to the plan to hold yourself accountable.\n*   **It can help you stop living paycheck to paycheck.** If you always seem to run out of money before the next payday, a budget can help you get a handle on your expenses to avoid overspending.\nHow to Create a Budget\n----------------------\nAre you new to budgeting or have you tried creating a plan that didn't quite work? There are many ways to pull a budget together, including by using Experian's Personal Finances tool. Here's how to get started:  \n### Step 1: List Your Income\nStart with income that you regularly receive each month. Compute the amount you receive by adding up the net pay found on your check stubs.\nNext, jot down any income you receive that's irregular or changes each month. If your earnings fluctuate because you're an hourly employee or self-employed, average your earnings from the past three to six months. You can also use the minimum amount you expect to earn from this income source for your budget.\n### Step 2: Compute Your Expenses\nDo you know how much you're spending each month? Review your credit card and bank statements for the past three to six months. As you look through the transaction activity, note the expense type and amount, and create a category for it in your notebook or spreadsheet.\nFor example, you may have categories for housing, food, utilities, insurance, debt payments, groceries, child care and pet supplies, just to name a few. Feel free to make these categories more detailed to give yourself a better idea of where your money goes each month. You may divide food spending into groceries and dining out, for example.\nInclude due dates for expenses related to recurring bills to help you budget more effectively. For expenses that may vary from month to month, like groceries, gasoline and even utility bills, err on the side of caution by using the highest possible cost when projecting expenses. To illustrate, if your grocery bill is between $300 and $400 each month, use $400 as the projected amount you will spend. If you don't end up spending that much, you can put that leftover money toward other things.\n### Step 3: Set Realistic Goals\nIn order for your budget to help you avoid overspending and going into debt, it's vital that you set realistic goals for yourself. This helps you stay motivated and will make it more likely you'll resist the temptation to overspend or get off track. Financial goals serve as a reminder of why you're following a budget in the first place and what's possible if you stay the course. Unrealistic spending goals are much easier to go unmet, which can be demoralizing and financially destabilizing. Plan out the goals you set so you're more likely to be able to reach them. If you blow through the budget you've set, review what happened and adjust for the next month.\nWhen you write down your goals, attach figures and decide how much it will cost to make them a reality. To illustrate, if you want to save up $2,400 in the next six months to put toward a new car, you need to add a line item for $400 in your budget.\nBeing realistic also means letting yourself have some fun. A carefully budgeted life doesn't have to be one without the occasional splurge—in fact, planning for some impromptu spending can reduce the anxiety that might accompany it.\n### Step 4: Monitor Your Spending\nAfter your first month with a budget, take a look at how your spending ultimately lined up with the financial goals you set for yourself. If it doesn't, you may need to make adjustments to your budget goals, your spending, or both. You can manually monitor your spending by reviewing your bank and credit card statements. But if you pay bills and make purchases from several accounts, this can be challenging.\nYou can make your life a lot easier by using budgeting software to automate the monitoring process and categorize your expenses. Ultimately, you want to keep close tabs on your spending to ensure your budget is realistic and won't be too challenging to follow going forward.\n### Step 5: Stick to the Plan\nDeciding on a plan is essential, but actually sticking to it is what matters most. Not all budgeting plans are the same, though. It depends on your money habits, financial goals and personal preferences. Refer to this detailed guide to explore budgeting plans that may work for you.\nWhen you struggle to stay motivated, refer back to the financial goals you set as they are the reason why you are budgeting in the first place. Remember that things like improving your credit score and building a retirement fund tend to take time, so don't lose hope if you don't see results immediately. Stay focused; you'll thank yourself later.\nThe Bottom Line\n---------------\nBy creating a budget and sticking to it, you can achieve your financial goals and possibly see improvements to your credit. Budgeting can also help you build an emergency fund, plan for retirement and stop living from check to check. Consider signing up for free credit monitoring through Experian, so you can better stay on top of your credit score and overall credit health as you begin to budget and improve your financial well-being. END