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5 Ways to Reduce Energy Costs at Home

6/27/2017 in Money Management Tips

Reduce your energy costs at home to help keep money in your pocket. Changing a few habits and upgrading some outdated items can have a significant impact on your monthly energy bills.

In this Money Management Tips post we’ll cover 5 topics you can use to help dramatically reduce your energy bill each month. Some of these tips might seem like common sense while others you might not have thought about.

1. Replacing old inefficient incandescent light bulbs with CFL or LED lights
Countries around the world have passed or are working on legislation to phase out the use of incandescent light bulbs due to their inefficiency and short lifespan. The lifespan of bulbs is usually represented in the number of hours the bulb will provide light before burning out. The lifespan of your typical incandescent bulb is 1,200 hours. CFL bulbs have an average lifespan of 30,000 hours while LED bulbs can last upwards and exceeding 50,000 hours.

CFL (Compact Fluorescent) Bulbs
Rather than passing electricity through a coil of wire, CFL bulbs pass an electric current through a tube filled with argon and mercury vapor and are up to 70% more energy efficient than an incandescent bulb. CFLs can run about $1 more per bulb than an incandescent but the cost savings over the lifetime of the bulb can be about $150 less than an equivalent number of incandescent bulbs.

The downsides to CFLs are the fact that they do contain small amounts of mercury, cannot be used with dimmer switches and can take a few seconds to reach full brightness after being turned on.

LED (Light Emitting Diode) Bulbs
LED bulbs use a number of small LED lights to output an acceptable amount of light. LED bulbs are more expensive than incandescent and CFL bulbs but have a lifespan of 50,000+ hours and use less energy than CFL bulbs and far less than incandescent.

The downsides to LED bulbs are the price and some people have reported some buzzing or flickering from their bulbs when used on a dimmer switch.

The savings
Assuming 25,000 hours of usage (about half the life of an LED bulb) and the cost of $0.12 per kilowatt hour, you can consider the following costs per bulb type: $201 for incandescent, $48 for CFL and $38 for LED. Source. These are for ONE BULB so imagine the cost savings if you changed over more of the bulbs around your house. Even if you don’t have the means to change every bulb in your house over to CFL or LED, simply changing the most used ones (like your kitchen, living room and bathroom) could save you nearly $50 per year.

2. Better management of your heating and cooling
According to the Energy Information Administration, about 42% of home energy costs go to heating and cooling. This leaves a lot of room for improvement and areas to save money.

A 1978 research paper (“Energy Savings through Thermostat Setbacks" by Nelson and MacArthur) found that in the winter, on average, if you turn the thermostat down by one degree Fahrenheit for eight hours every night, you’ll use about 1% less energy. If you raise the temperature in the summer and lower it in the winter while you’re not home or in bed you can dramatically cut back on your energy costs.

If you install and properly use a programmable thermostat you can also easily save on energy costs without having to remember to adjust your thermostat throughout the day. Several studies have found that many people improperly use programmable thermostats however and actually end up with higher energy usage than without. This comes down to people overcompensating the assumed savings from adjusting the temperature during the day or night with dramatically more usage in the morning and evenings. Just because you have the potential of cutting back on energy by reducing demand when you’re gone or sleeping doesn’t mean you can now use more energy in the morning and evening when you’re home.

An Environmental Protection Agency (EPA) document from 2004 describing the Energy Star programmable thermostats specification [PDF] summarizes the research into their efficacy:

Consumers are often advised that installing a programmable thermostat can save them anywhere from 10 to 30% on the space heating and cooling portion of their energy bills. While reliant on proper use of the programmable thermostat, such savings are easily true in theory; however, there needs to be more field-tested data to better substantiate savings claims. Analyses from recent field studies have suggested that programmable thermostats may be achieving considerably lower savings than their estimated potential.

In 2000, the Energy Center of Wisconsin published a report entitled “Programmable Thermostats Gone Berserk? Taking a Social Perspective on Space Heating in Wisconsin" [PDF]. The study found, in part, that:

Despite the emphasis that has been placed on the use of programmable thermostats to reduce thermostat setpoints and so save heating energy, respondents with programmable thermostats report thermostat setpoints that are not substantially different from those of respondents with manual thermostats.
[…]
These details and the conclusions above lead us to suspect that the aggregate savings that can be expected from the installation of programmable thermostats in residential housing is probably quite modest.


3. Unplug unused electronics
One thing you might not think about is the power your various devices and appliances use even when “turned off". This power draw is called standby power and can account for up to 10% of your home’s energy usage (source). This can add up to $100 per year just to power unused devices.

Which of your devices and appliances might be consuming power even though they’re off? Here are some basic rules you can look for:
  • Anything with a remote control (TV, VCR, cable box, stereo)
  • Anything with an external power supply
  • Anything with a digital display, LED status light or digital clock
  • Items that contain battery chargers

What can you do to cut back on standby power? The best way is to simply unplug the unused or rarely used items when you don’t need them. One tip is to use power strips with an on/off switch so you can easily turn on or off clusters of electronics (like a TV, VCR and gaming console) without having to physically plug and unplug them.

Here are some common devices you can unplug when not being used:
  • TV in a second bedroom or basement that gets used a few times a year
  • Gaming consoles (Xbox, Wii, Playstation, etc)
  • A printer that doesn’t get used regularly
  • DVD / Blu-ray players
  • Any kitchen devices with a clock or LED status that you don’t use daily

4. Changing your water usage habits
Being aware of how you use your water can affect both your power and water bills. Energy.gov has a list of 15 ways to save on your water heating bill. Some of the tips we believe will be the most beneficial are:
  • Reduce your hot water heater temp to 120’F
    • Every 10’F reduction can save 3-5% on water heating costs
  • Use cold water for most laundry loads and in the rinse cycle
    • This can be a difference of around $0.65 per load
  • Fix any leaks. A leak of 1 drop per second can cost $1 per month and might be as easy to fix as tightening the connection on a pipe
  • Don’t let the faucets run while brushing your teeth or cleaning dishes
    • Letting the faucets continually run while brushing your teeth or cleaning your dishes can waste several gallons per day. Over the course of a month this can really add up quickly and affect your water bill.

Simply being cognizant of how you’re using your water and when you’re using your hot water heater (every time you use the hot water the tank will get refilled and needs to be reheated which uses power) you can help cut back on your costs. While each of these alone might not add up to a lot, when combined and used with other tips they can help you save over time.

5. Air seal your home
Sealing your home to prevent drafts is important to keep hot air inside during the winter and cold air inside during the summer. Energy.gov has a lot of information and tips on air sealing your home.

There are a few easy fixes to help seal your house and help prevent your conditioned air slipping through the cracks.

Caulking around stationary joints
There might be gaps around your door or window frame and the wall where air is seeping through. To fix this problem, add caulk to any gaps around the frames where they meet the wall. Doing this can save 10-20% on your heating and cooling bills. Here’s an Energy.gov article that covers how to caulk around these joints.

Add weather stripping to moveable joints
After sealing around the frame and wall with caulk, the next step is to eliminate any gaps between your doors and windows and their frames. Weather stripping is usually rubber or foam that has a sticky backing that fits around the frame and will fill the gap between a door or window and frame that aren’t properly fit. If you look at your door and can see light or gaps between the door and the frame then that means air can be seeping through. Adding weather stripping can save between 5-10% on your heating/cooling bills. Here’s an Energy.gov article that covers weather stripping.

Install insulation film over windows during winter
Window insulation film is a plastic sheet that you apply to your windows in the winter to reduce heat transfer. There are two types of insulation film generally available. The first is a solar control film that works by reflecting infra-red light and absorbing UV light. This film sticks directly to the glass. The second is called a convection control film and is simply a piece of plastic that covers the window to trap a pocket of air which acts as insulation. Some types of this film are shrink wrapped by heating with a hair dryer after taping to the frame.

Summary
There are many ways to reduce your energy costs by changing some of your habits around the house or from buying some more energy efficient items. While it might be difficult to use and apply every one of these tips, we encourage you to give some a try.

If you’ve found ways to cut back on your energy bills please share your experiences in the comments below!

This is part of our weekly Money Management Tips series that aims to help you take more control of your finances. This series gives tips on everything from tracking your spending to improving your credit score.

Preparing for the Unexpected with Emergency and Rainy Day Funds

6/20/2017 in Money Management Tips

Do you have enough saved to cover a major car or home repair or unexpected hospital bill? If not, having money set aside for emergencies is extremely important.

In this Money Management Tips post we’ll explore some ways to help ensure you’ll be able to afford any large unexpected bills.

What is a rainy day / emergency fund?
For the sake of simplicity we’ll be referring to this money as an emergency fund through the rest of this article. An emergency fund is money you’ve set aside for any unexpected bills, job loss, illness or decrease in salary. It’s a way to make sure you’ve got some excess cash available in case of an emergency so you don’t have to rely on credit cards which can potentially lead to large amounts of credit card debt.

If the transmission dies on your car do you have the means to pay the $2,000-$3,000 to get it fixed? If the furnace in your house dies in the middle of the winter do you have a few thousand dollars to buy a new one? If you were seriously injured in an accident and need to cover a several thousand dollar insurance deductible, can you do that? Will you be able to cover a four to seven months of rent / mortgage and expenses if you suddenly lose your job?

These are all cases where having money set aside in an emergency fund will make an extremely difficult time a lot easier to manage.

How should I manage my emergency fund?
This really comes down to how you manage your own finances. If you have the discipline to keep everything in one account then all you need to do is make sure you have extra cash available in your checking or savings account (How much? We’ll cover that later).

Another option is to have separate accounts for your various emergency funds. Keeping this money in a high yield savings account is a great way to earn a little extra money as well. Using this method, you’d have one combined or separate accounts for what you’d like to cover with your emergency funds. For example, if you have a car and own your home then it might be good to have an account for each. Then, each month you’d transfer some amount of money to each of those accounts where the money stays hidden away until an emergency occurs.

If you decide to open an account for each type of emergency it’s important to make sure the account has enough money to cover your needs if an emergency occurs. Usually a few thousand dollars will cover an emergency or unexpected bill.

How much money should I have in my emergency fund?
This really depends on your financial situation and what kind of emergencies you might encounter. Someone living in a rented apartment with no car will need far less of an emergency fund than someone who owns a home and has multiple vehicles.

At the minimum we’d suggest having at least $1,000 set aside for each vehicle you own. Take a look at your health insurance information and find out what your deductible is and keep that amount. This could be anywhere between $500-$3,000 depending on your insurance plan. If you have a spouse and children, keeping the deductible amounts for them is also advisable. Owning a home comes with a lot of unexpected expenses as well. Having at least $2,000 put away for any emergency replacements would be a good start. This would let you quickly buy a new oven, a/c unit, refrigerator, etc without having to worry about the money. Having an account to cover personal expenses for a few months would also be great in the case of job loss. Simply add up all your expenses (mortgage/rent, car loan, groceries, gas, etc) for 3-4 months and keep that amount tucked away.

If you don’t have the money available to immediately transfer to your various emergency funds then you can always transfer $25-$50 per month into your accounts until you’ve reached your necessary amounts.

This is part of our weekly Money Management Tips series that aims to help you take more control of your finances. This series gives tips on everything from tracking your spending to improving your credit score.

8 Ways to Invest Your Money and Earn More Interest

6/13/2017 in Money Management Tips

Here are 8 ideas that will help you make your savings work for you by taking advantage of higher interest rate and other investment accounts.

This Money Management Tips post lists some ways you can earn a little more from your money that’s just sitting in a low yield savings account.

Before we get into some of the various accounts and investments, it’s important to remember that you should always have some money available for any unexpected accidents or emergencies. You don’t want to have all of your cash tied up in investments that you can’t immediately reach.

In this post we’ll list some choices in order of how risky the investment is. Generally, the less risky an investment is the less return you’ll get. It’s up to you to determine your level of risk. We break down each investment based on risk, amount of work, liquidity of your money and potential return on investment. Balancing these categories is important to determining which investment is right for you.

1) Standard Checking / Savings Accounts
No Risk. No Work. High Liquidity. Very Low Return. FDIC Insured. 0.01-0.05%
These are your standard checking and savings accounts from most national banks. You can quickly remove money from these accounts to pay bills or to use in case of emergency.

2) High Yield Online Savings / Money Market Accounts
No Risk. No Work. High Liquidity. Low Return. FDIC Insured. 1%
These are usually online-only accounts or special accounts set up through your bank. You can usually withdrawal or transfer your money out of the account fairly easy but read the fees carefully because you can be charged for those withdrawals in some cases. LendEDU has a great resource for the latest Money Market accounts and going rates. They break down the features of each account and give some pros/cons to help you choose the best money market account for you. Check out the full resource here: LendEDU Money Market Account guide

3) Certificate of Deposit (CD) Accounts
No Risk. Little Work. Medium Liquidity. Low Return. FDIC Insured. 0.5-2%
CDs are what’s referred to as a Timed Deposit. This means you deposit your money and agree to leave it in the account for a set amount of time, with longer durations generally giving higher return. Removing money early can result in fees. There is a technique called CD Laddering where you start separate 1, 2, 3, 4, and 5 year CDs. Once one of the CDs matures, you invest the money into a 5 year CD. The result is that after 5 years you’ll have a CD maturing each year.

4) Bond Index or Mutual Funds with a Brokerage Account
Low Risk. Some Work. Medium Liquidity. Low Reward. Not FDIC Insured. 1-3%
By opening a Brokerage account and letting others manage your money, the amount of work is low and you’re leaving all the investing to professionals whose job it is to pick the best investments. Since these funds are managed, there’s usually a small percentage fee associated with them. These funds are usually made up of many different investments or can be very specific in the companies the mutual funds are comprised of. For example, rather than investing in several health care companies you could invest in a health care fund that has many different health care related companies in their portfolio.

5) Purchasing Government / Treasury Bonds direct
Low Risk. Some Work. Medium Liquidity. Medium Reward. Not FDIC Insured. 1-5%
Treasury Bonds are fixed interest savings bonds issued by the government and are guaranteed to be paid out. There are Treasury Bills, Treasury Notes and Treasury Bonds. Each have different times to maturation and will have different interest rates.

6) Stock Index Funds, Mutual Funds & ETFs with Brokerage Account
Medium Risk. Low Work. Medium Liquidity. Potentially Moderate Reward. Not FDIC Insured. 6%+
This is similar to #4, but instead of investing in Bond Indexes you’re investing in Stock Index Funds and ETFs in addition to mutual funds. These generally have higher returns than other investments and depending on the fund you invest with. Research should be done to make sure the fund you’re investing in has a good history and fund managers. These funds usually have fees and minimum purchases associated with them.

7) Trading Individual Stocks
High Risk. High Work. Medium Liquidity. Potentially High Reward. Not FDIC Insured
Rather than investing in a fund that invests in many individual stocks, you’re fully in charge of buying and selling your own stocks. This means you have to do due diligence in selecting stocks you believe will give you the best return. There are fees associated with both buying and selling stocks.

8) Investing in Residential or Commercial Real Estate
High Risk. High Work. Low Liquidity. Potentially High Reward. Not FDIC Insured
This requires a high upfront investment but has the potential to provide great returns. There are several ways to invest in real estate ranging from buying, renovating and reselling a home, renting properties, buying and then leasing commercial space or Real Estate Investment Trusts (RETI).

We just want to reiterate that you should double check all fees associated with accounts and investments and do your research to make sure you know what you’re getting yourself into. Make sure you're also being smart with your money and not investing all of your savings in a very risky investment that might end up with you losing money instead of making it.

Even with a few minor changes, like opening a high yield savings account, you can potentially earn much more than you are currently if your money is parked in a standard checking or savings account.

We’ll dive into more detail for the various accounts and investments in future Money Management Tips posts.

If you have any feedback or want to share with us and others how you’ve made your money give you a better return on investment, please post in the comments!

This is part of our weekly Money Management Tips series that aims to help you take more control of your finances. This series gives tips on everything from tracking your spending to improving your credit score.

Week long challenge: Don't eat out for breakfast or lunch

6/9/2017 in Goals and Challenges

Save $45 or more by challenging yourself not to eat out for breakfast and lunch this week!

It’s amazing how quickly the costs associated with eating out add up. With a little planning you can make your own breakfast and lunch and you’ll be surprised by how much you can save.

The Challenge:
This week’s Goals and Challenges series post is all about cutting out the high costs (both financially and for your health) associated with fast food for breakfast and lunch. Make it your goal to plan some meals ahead of time and eat them for breakfast and lunch this work week.

How should I prepare for the challenge?
The best way to start this challenge is to go into it with a meal plan. Since we’re starting this challenge easy by only having you prepare breakfast and lunch for 5 days, coming up with a meal plan will be very easy.

We recommend going and buying groceries on Saturday or Sunday and then using Sunday to prepare some of the meals ahead of time which will make it faster and easier to get out the door in the morning. Also keep an eye out for ways to save money at the grocery and find ingredients you can use for both breakfast and lunch. As you’ll see below, I buy dry black beans in bulk and get about 4x the amount for the same price.

A meal sample for the week:
In my example we’ll focus on some protein heavy meals which will help keep you feeling fuller for longer. You can certainly eat cereal or oatmeal for breakfast but the high amount of carbs and sugar will leave you feeling tired and hungry after a couple of hours which could lead to snacking or buying more food.

This is the plan I follow but you can certainly alter it to fit your dietary needs. For breakfast I make a two egg omelette filled with black beans (about ¼ cup) and some cheese, seasoned with salt, pepper and turmeric. I’ll top the omelette with a few tablespoons of salsa. If I know it’s going to be a late lunch I’ll also have a piece of toast with some butter and jam.

If you don’t have time in the morning to make breakfast, use Saturday or Sunday to prepare some meals so you can easily heat them up. Scrambling up a bunch of eggs with some diced peppers and onions and then stuffing that in a tortilla makes a really quick and easy meal to reheat in the morning.

For lunch, try to skip on the frozen microwaveable meals. They’re often times packed with sodium and focus on low calorie counts which will just leave you feeling hungry and unfulfilled after an hour or so. Instead, work on making a hearty sandwich or bringing leftovers from last night’s dinner.

I have access to a stovetop at lunch so I like to make quesadillas. I use whole wheat tortillas, cheese, spinach, diced tomatoes, lots of black beans (for that protein kick), onions and bell pepper in my quesadilla. I’ll also mash up half an avocado with a little salsa for a quick side of guacamole which gives a lot of healthy fats and will help keep me full. I’ll often bring an apple and some chips and hummus to snack on a little before or after lunch to help keep me from wandering out and buying a snack.

Rather than grilling up a quesadilla you could always opt for a filling sandwich. Buy some of the heartier bread (whole grain with nuts or seeds), throw on some cheese, tomato, red onion, spinach and any protein of choice.

As referenced above, when I go grocery shopping I try to buy ingredients that I can use for both breakfast and lunch. The cheese, black beans and salsa I use for my omelette and quesadilla are all the same. This saves me money and makes it less likely that something will go bad in the fridge from not being used.

Buying dry black beans and cooking them yourself is significantly cheaper than buying canned beans. It takes 2 hours and can be done while you’re doing other chores around the house. Add about 1 cup of dried black beans to a 3-4qt pot and cover with a few inches of water. Bring to a boil and then reduce to a simmer for an hour and a half. Drain the beans and store in the fridge for 5-7 days. No overnight soaking necessary. I don’t season the beans since I found that spoils them faster or makes them tougher. I rely on seasoning them when using them in a meal.

Mixing up what you eat is also important so you don’t get bored of cooking and then start thinking about eating out again. Stuffing the omelette with different ingredients, cheeses or seasonings will help a lot.

The amount you spend on food for breakfast and lunch for the week will probably be about what you spend in a single day on fast food if you eat out for both breakfast and lunch. These savings add up extremely fast.

The savings
Based on the assumption that eating out for breakfast and lunch will cost you $5 and $8 respectively per day, this means you're spending $65 per 5-day work week eating out. For about $20 you can easily buy all the ingredients needed for the meals listed in the example above which can save you around $45 during your work week. Other ways to help save are to make your own coffee instead of spending $3-5 per day to buy coffee out. If you buy soda, tea or juice throughout the day, try cutting those out and replacing it with water.

What next?
What can you do with all the money you’ve saved by making your own breakfast and lunch? We recommend applying it toward any credit card or student loan debt, an extra payment on your mortgage or savings / retirement funds.

After you see how easy it is to save money by making your own meals for breakfast and lunch, we challenge you to also try making all your own dinners for the week as well!

If you’ve successfully accomplished the challenge and have any advice for others on how you did it, please share it with us in the comments below!

This post is part of our Goals and Challenges series where we challenge you to try cutting back on your spending or to save more in certain areas.

What is your Credit Score and how can you raise it?

6/6/2017 in Money Management Tips

Credit scores are one of the most important factors when it comes to getting loan approvals or getting good interest rates on those loans. If you have poor or bad credit (scores below 650) then it would be in your best interest to work on raising your score.

This blog post covers how your credit score is calculated and gives you some advice on ways to help raise your score.

Find your Credit Score / Credit Report
Before getting started we recommend checking your credit score and getting your free annual credit report. Your credit report will list all inquiries, outstanding loans and debts and all lines of credit. You’ll use this report to track down any discrepancies and work with debt collectors to lower or drop some of your outstanding debts. In the United States, you can obtain your credit report for free through AnnualCreditReport.com. This is what the credit rating agencies use to determine your credit score.

The Consumer Financial Protection Bureau provides some information on how to get your credit score. If you already have a credit card you should check to see if they provide you with your score for free. We know that both Chase and Capital One customers can check their credit score for free.

How is your credit score calculated?
Since the credit reporting companies (Equifax, Experian and TransUnion) use proprietary formulas to determine your scores, there is no way to know exactly how your score is calculated but there has been a lot of research done and some general guidelines can be used. What is known is that the calculation is broken into five major categories with varying levels of importance, all of which are taken into account when determining your overall score. These categories are (in order of importance):

  • Payment history (35%)
    • The payment history category is determined by looking at how well you’ve paid your prior obligations. Past issues such as bankruptcy and delinquency are also factored into this category. The severity of issues, time it took to get resolved and how long since the problems are also factors in determining this part of your score.

      The best way to keep this portion of your score high is to pay your debts early or on time, every time.
  • Amount owed (30%)
    • This is how much you currently owe to lenders. This category looks at current amount of debt and the number of different types of debt you currently have. If you have many different lines of credit, loans or debts, this will adversely affect your score.

      There is also a ratio called the 30% Credit Utilization Rule that says your score is negatively affected if you currently borrowed more than 30% of your credit limit, not just for your overall combined limits but for each individual line of credit. This means if you have a $1,000 credit limit on a credit card and you spend $400 one month, your score could take a slight hit. Keeping your spending low will help improve your credit score.
  • Length of credit history (15%)
    • There’s not much you can do to affect this one. This is how long you’ve had lines of credit open. The more credit history you have the better your credit score will be. Someone with 10 years of on-time payments is a lot less risky than someone with 1 year of on-time payments in the eyes of creditors. Keep in mind that closing old credit cards can have a negative impact on your credit score since the history associated with those cards will be removed.

      If you don’t already have any lines of credit, it’s recommended that you open a credit card (more about that below) to start building some history.
  • New credit (10%)
    • If you’re constantly opening new lines of credit this is seen as a negative in the eyes of the credit reporting agencies. Opening new cards can be seen as you having financial pressures which indicates problems to them. Opening one new card isn’t going to greatly affect your score but opening 5 new cards probably will.
  • Type of credit used (10%)
    • Having a mix of credit types is seen as a positive to the credit reporting agencies. This means someone with on-time payments to a mortgage, auto loan and credit cards is a lot more trustworthy than someone who only has on-time payments made to one credit card.

      This is a relatively small percentage of your credit score though so it’s not recommended to go out and get a new loan just to try and improve your score.

Improving your credit score:
It becomes a lot easier to work on improving your credit score now that you know the factors that determine your credit score. If you already have one or a few credit cards, the most important thing you can do is make sure you’re not maxing the card out (try to stay below that 30% of credit limit rule) and paying your bill on time.

If you’re having trouble staying below the 30% rule, make sure you’re properly tracking your spending in ClearCheckbook and look for areas you’re overspending and can cut back on. One extremely easy way to keep your spending low and to ensure you pay on time is to use your credit card for one thing per month, like buying a tank of gas, and then immediately pay the bill when the transaction posts. This will keep your payment history excellent and you’ll also keep your debt utilization low which is very important.

Raising your credit score above 700
The technique below was taken by researching what others have done to raise their score from the 500’s up into the 700’s. We don’t guarantee that these techniques will work for everyone and the issues might not be the same ones you face which are causing you to have a low score. We hope you can take some ideas from this and apply it to raising your score.

Step 1: Get your current credit score
The first step to raising your credit score is to know what your current credit score is. We mentioned a few ways you can get your score earlier in this post but you can also sign up for a free service like Credit Karma that lets you regularly track your credit score. Credit Karma doesn’t require any billing information and is legitimately free. They make their money off targeted advertising based on your credit history.

Credit scores range from 300-850 and are broken into a few categories based on your score. The score categories are: 500 or below = bad; 550-649 = poor; 650-699 = fair; 700-759 = good; 750 and above = excellent.

Step 2: Get your full credit report
Next, you’ll want to get a full credit report that lists all accounts. Use this report to find any accounts that are delinquent or have gone to collection agencies. You’ll be using this information in the next step to work on removing some of these delinquent accounts.

Like we mentioned above, you can use AnnualCreditReport.com to get a free credit report.

Step 3: Dispute debts / Negotiate with debt collectors
Call each of your accounts and dispute each one. The hope here is that they can’t prove the account is real or that they followed the law in regards to the Fair Credit Reporting Act (FCRA) and they will remove the account from their system, and thus, your report. Also ensure that any debt collectors that have contacted you are adhering to the Fair Debt Collection Practices Act. If you believe a collection agency is breaking the terms of this act you can file a dispute with the Consumer Financial Protection Bureau.

For the remaining delinquent and/or other accounts in collections that weren’t removed, work on negotiating down the debt. Call the account holders and let them know you can’t afford to pay the entire debt but want to settle now and can pay them a certain amount (target about half of what the debt amount is). You’ll probably need to speak to a manager to get this approved but this can greatly reduce the amount owed.

An additional option is to sign up for a service that sends letters on your behalf to your remaining accounts demanding that they show proof and accuracy of any negative items on your credit report. These services do charge either an upfront or monthly fee so they may not be for everyone. While you might have ethical issues with using a service like this, it has helped people in the past get items removed from their credit report.

After doing all of this the goal is to have removed or reduced the amount owed to as many of your accounts as possible which should make it easier to pay them off.

Step 4: Pay off any remaining delinquent accounts
After negotiating debt reductions you’ll need to pay off your existing debts. If you have the money available then you should pay off the debts immediately. If not, we recommend using the ClearCheckbook Debt Snowball Tool to manage your debt payments. Paying off your existing debts will dramatically improve your credit score since the amount of debt you owe makes up 30% of your credit score.

Step 5: Start building good credit
Because payment history makes up the biggest portion of your credit score it’s important to have a good track record of on-time payments. One way to do this is to get a credit card and make one purchase per month and immediately pay the card off. An extremely easy way to do this would be to use the card once per month to buy a tank of gas for your car.

Depending on your current credit score you might not get approved for an actual credit card. If that’s the case you can sign up for a secured credit card. Secured credit cards require that you essentially pre-pay the card with a certain amount. Credit limits on these cards are generally low but that’s OK since all you care about is making the one small purchase and immediately paying it off in full each month.

Step 6: Continue with on-time payments / building credit
Since the most important aspect of your credit score is your payment history, it’s extremely important to continue to pay your loans, credit cards and bills on time. If you had a secured credit card and have been using that to raise your score, see if you can open a traditional credit card and continue making a small purchase on that and then pay it off in full each month.

Having a few different lines of credit is always a good thing but that doesn’t mean you should go buy a new car just to get an auto loan. Make sure you can afford to purchase a new vehicle or home if you’re planning on opening a new line of credit.

Step 7: Work with any account holders to remove late payment reports
This falls into the “it never hurts to try" category. If you made some late payments to a credit card or auto loan in the past but have had good payment history since then, you should try calling the companies and asking them if they will remove the late payment notices from your report. This plays into the ‘Payment history’ category which is the biggest factor to determining your credit score. If the companies will remove these late payment notices then it can have a dramatic effect on your score.

Hard vs Soft Pulls
One last thing we wanted to mention before wrapping up this blog post are the two ways your credit score can be accessed. When you check your credit score through a service like Credit Karma or through your credit card’s website, these are soft pulls and do not affect your credit score at all. Hard pulls are made when applying for a loan, a new credit card, or anything that requires a company to check your FICO score. Hard pulls do affect your credit score and will remain as inquiries for several months.

Final words
There’s a lot that goes into determining your credit score. The most important things you can do are to pay your bills and debts on time, stay within the 30% rule and don’t open as many lines of credit as possible. Everything in this post is meant to provide some information and some possible ways for you to raise your credit score. We encourage you to do some follow up research on your own before attempting any of the techniques in this post.

This is part of our weekly Money Management Tips series that aims to help you take more control of your finances. This series gives tips on everything from tracking your spending to improving your credit score.

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