Nine Critical Steps To Improve Your Credit When Facing A Financial Crisis
Life is filled with many unseen and unexpected events, and as we take on more responsibilities, at some point or the other, we’re bound to go through inevitable financial ups and downs. Some people can manage these situations and come out of it with minimal loss or damage, while some people cannot handle their financial problems due to various reasons. In this article, we will elaborate on why these kinds of situations occur, how they can be fixed, and what tools are available to help you make your situation better.
Why this happened to me - Problem diagnosis.
To come up with the right solution for your financial troubles, the very first step is to find where the problem originated. Was it something you did or was it an unexpected event? Try to retrace your steps to see where things went wrong. To help you understand where your problem could have possibly begun, we have categorized a few reasons why your financial troubles may have come about.
a. Lack of financial literacy and knowledge.
Financial literacy is a must in today’s fast-paced and challenging society. However, we live in a country where so many people have different nationalities and various backgrounds. As a result, they lack solid, reliable knowledge to manage their finances here. Limited knowledge of the available money saving options and not planning your expenses may lead to an unpleasant situation that’s either short-term or long-term.
b. Consumption and expenditure patterns.
This is the most common reason for financial crisis. People go through financial challenges simply because they are not aware of certain behaviors in their spending patterns. A minor tweak to their daily spending habits would help them save a couple of hundred dollars.
c. Insufficient income for small business owners.
Sometimes this situation happens due to a weak economy, market shifts, and sometimes due to the lack of proper planning and right time action. These are the undeniable facts of today’s business market, and for this reason, flexibility, market knowledge, prediction, and planning are definitely necessary to overcome the situation.
d. An unexpected life event.
Separations (or divorces), loss of a loved one, sudden layoffs, accidents, disabilities, and critical illness might be beyond our control and impact our finances and credit score.
How to improve your credit status
To stand up on your feet and get back on track during an economic struggle, you need to inject some cash into your financial vein. Your credit status and scores play a vital role in your ability to come up with the money you need through available financing option. However, for this, you need to start improving your credit status so you can get ready for the next step.
To help you fix your credit status and improve your financial situation, here’s what you need to do.
1. Change your consumption and spending pattern.
Paying off a small part of your debts would help a lot. So, attempt to pay the minimum payments on the credit cards as soon as possible. Similarly, a minor change in your daily spending habits might translate to saving more each month, which can be used as a payment towards your credit card bills.
2. Reduce the number of your credit cards or trades.
Although you can use this as an option, it has to be utilized with cautious as it might impact your Credit Utilization Ratio. We highly recommend consulting an expert to do the calculation for you before you start closing your credit card accounts. The ideal or manageable number of trades or credit cards is usually three. If you have more than three, reducing them may be an option that you should look into.
3. Lower the balance on your credit (Credit Utilization Ratio).
Pay off as much credit balance as possible to lower the ratio of your debt balance to the credit limit, (which is called your Credit Utilization Ratio). Although there is no set number for the ratio, keeping it under 70% would be ideal as it makes a big difference in your score in a short period.
4. Ensure you do not miss any payments.
Making the minimum payments on your credit card is very critical to your credit score. Payment delinquency has the greatest damage and impact on your credit history and score. To ensure you don’t miss any (minimum) payments, you can simply set up an automatic bill payment through your financial institution.
5. Negotiate with your creditors.
Utilize this option only if you are in a very tough spot, and you are not able to fully exercise the above options. You can negotiate with your creditors to reduce the amount owed and make payment arrangements that work for you. However, we recommend you to use this option as a last resource. The reason is that in most cases, any arrangement you make with the creditors will reflect on your credit report and will stay in your history for a while. You can consult with a credit counselor before exercising this option to ensure you are making the right decision.
6. Don’t let credit institutions make inquiries on your credit bureau.
Try to get your own report from credit report providers such as Equifax when you want to apply for any credit or loan for initial evaluation. If you plan to use a mortgage broker, they have a system in place which allows them to shop around for you with just a one-time credit check (and use it for different lenders). Moreover, an experienced broker will know where your file can be a winner, so there is no need for trial and error work, and your number of applications is minimized. You can also start using the service of the Credit Bureau Agencies to monitor your credit status whenever necessary.
7. Debt consolidation.
As soon as you are ready to, try to consolidate all your debt under one loan, preferably with a lower rate than the one you have on your credit cards. By consolidating your debts, you do not need to control several payments, and you can manage only one more efficiently. At the same time, you can save money due to a lower rate of interest.
8. Educate yourself on financial products and available options.
Being aware of the wide range of products and options that are available to you will make a huge difference in your bottom line financially. From simple bank accounts to investment products, insurance products, various loans, and mortgages, there is a lot you need to know and learn to meet and optimize your financial goals. You can use available hands-on resources such as seminars and workshops to stay on top of your financial destiny.
9. Seek professional advice.
We understand that poor credit and financial crisis are uncomfortable and quite challenging. We also understand going through all of this by yourself makes it even tougher, especially as the changes you need to make require discipline and motivation. With the guidance of a financial advisor, you should be able to manage your new financial plan and improve your situation. Here are four different types of financial advisors and coaches that you can seek out for advice and assistance during your recovery to a better financial standing.
A. Credit repair and loan specialists: They guide you through all the steps mentioned above and prepare you for your consolidation loan either through secure loans or unsecured personal or business loans.
B. Financial advisors: They are of great help when it comes to adjusting your spending patterns, finding the extravagant expenses, and planning for adequate savings.
C. Business consultant: When your business is not performing, and you cannot meet expectations, you need to change something. Having an expert beside you who looks at your business from different angles, can evaluate the situation, and recommend a new perspective towards improving the situation is a wise choice. A business consultant can provide you with this expertise.
D. Personal and life coaches: Although everyone can benefit from an experienced life and personal coach, they are particularly beneficial for those who have been through unexpected life events. These events can be tough to handle all alone, and the sooner you take control of the situation, the less harm it will cause to your mental, spiritual, and financial aspects of life. A financial adviser, together with a life coach or consultant, can be of great help during and even after these types of events.
In case you are struggling with a financial catastrophe, reach out to the experts at MassMortgageGroup.com. As financial experts, we understand your situation and provide the support you need no matter what economic calamity you may be experiencing.
At MassMortgageGroup.com, we offer residential and commercial mortgages in Ontario and serve clients all across Scarborough, North York, Toronto, Newmarket, Richmond Hill, Aurora, and Markham, Ontario. We are a team of senior mortgage agents and brokers who specialize in helping people satisfy their financial needs, especially those who have a hard time obtaining mortgages from major banks due to their credit issue or type of occupation.