Top Strategies for Assessing Your Financial Health

How to Do a Financial Checkup - Prosper

Regularly checking on your financial health is crucial to understand your current status and your credit score. This is especially important if you are planning to make any significant purchases soon. Even if you aren’t planning on any major purchases right now, it’s always good to know what your financial profile looks like, what improvements can be made, and to ensure there has been no fraud or errors. Here are some effective strategies to monitor your credit and financial health.

Annual Credit Report The first step in assessing your financial health is to obtain your free annual credit report. While many credit card companies provide your credit score, they don’t give you the full credit report. It’s essential to check this every year to verify the accuracy of the information. Since the three major credit reporting agencies (Equifax, TransUnion, and Experian) rely on reported data, errors can occur.

Review each report carefully to ensure all information is correct. Common discrepancies include incorrect names, addresses, creditor amounts, and payment statuses. If you find errors, you can submit a dispute to have them corrected.

Important Items to Review:

  • Maiden and married names
  • Current and past addresses
  • Amounts due to creditors
  • Correct creditor listings (e.g., “pays as agreed” or “late payments”)

While these reports don’t include your credit score, you can use apps like Credit Sesame to check your score monthly and see the factors affecting it. This helps you monitor and improve your score over time.

Debt Your credit report will list all past and present creditors, showing whether you paid as agreed, are paying on time, or are delinquent. Review this information thoroughly, as it significantly impacts your credit score and financial health.

If you owe creditors and are not paying as agreed, reach out to them to establish a repayment plan. Two popular methods for debt repayment are the debt snowball and debt avalanche. Choose the method that best suits your personality and financial situation.

Credit Cards Next, evaluate your credit card usage. If you have credit card debt, stop using those cards until the debt is paid off to avoid accumulating more interest fees. Don’t close the accounts, as this can negatively affect your credit utilization ratio and lower your score. Instead, keep the cards open but put them away where you won’t be tempted to use them.

Switch to using cash for purchases to help you think more carefully about spending. This method helps you become more aware of your spending habits and differentiate between needs and wants.

Budget Once you know how much debt you have, create a budget. Decide on a debt repayment method and allocate any extra funds toward paying off your debt. Aim for the most aggressive repayment plan possible to eliminate debt quickly, even if it means sacrificing some wants temporarily.

Also, work on building your emergency fund. Having a financial cushion enhances your financial health and gives you more freedom to make choices without financial stress.

Financial Health Understanding your credit score and financial health is essential. While your credit score isn’t everything, it is a good indicator of your financial stability. Make sure to pull your annual credit report to verify accuracy, pay off your debt quickly, and increase your assets, including your emergency fund.

One of the best tools to monitor your accounts and progress is Personal Capital. This app is invaluable for weekly budget meetings and keeping track of your financial health. Utilize available resources to ensure you stay on track with your financial goals.

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