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.

Setting up your spending categories appropriately is absolutely the best way to start tracking where your money is going and the first step to setting up your budgets.

In this Money Management Tips post we’ll cover the essentials of properly setting up your spending categories in ClearCheckbook, how to view your monthly spending and finally how to set up budgets to keep your spending in check.

Setting up your categories:

We automatically create some default categories for you when you sign up with ClearCheckbook. These are some commonly used categories but are definitely not all-encompassing and we encourage you to add as many spending categories as you need to properly track where your money is going.

To manage your categories, click on Settings at the top right side of the page and then click on Categories. At the top of the page you’ll see a form where you can add new categories.



To add a new parent or sub category, enter the name of the new category in the Category Name field. Next, decide if you want this to be a parent or sub category. To create a new parent category, leave the Parent drop down list set to ‘No Parent’. If you select a category from the Parent drop down list, the new category will become a child of the selected category. Finally, click the Create Category button.

You want to make sure you create categories for everything you spend money on regularly. For example, if you regularly go to the movies, you should create a Movies category (maybe put this as a subcategory to Entertainment). If you do a lot of shopping you should create a Shopping parent category and then make subcategories for various articles of clothing. We’ll look at all of these in the reports later to see how much you’re spending and help you determine places you can cut back on.

Categorizing all of your transactions:

This step is extremely important. Whenever you add your expenses to ClearCheckbook you should be categorizing those transactions appropriately. When starting out, we recommend being extremely specific with your categorizing. For example, if you go to a store that sells both groceries and clothes and you buy some of both, you should split the transaction and categorize the amount you spent on each separately. Remember, when splitting a transaction the parent should not be categorized, just the split amounts.

Viewing your spending for your various categories:

We have several great reports for tracking where your money is being spent. The first is the Category -> Text reports.



The Category -> Text reports show a breakdown of your spending per category per month along with averages and totals for the year. Using this information you can quickly see how much money is being over spent in various categories that you might not have expected.

Another great report is the Category -> Pie by Year pie chart. This chart has all of your categorized spending broken apart by category for the entire year. Seeing large pieces of the pie can really help determine areas you need to cut back on spending.



Once you’ve looked at the various reports you should determine where you think you need to cut back on spending and how much you want to work on reducing your spending on your various categories.

Creating Budgets to keep your spending under control:

After identifying some categories you think you can cut back on, the next step is to create budgets to help you keep your spending in check. To create a new budget, click on Budgets at the top of the page. If you haven’t already created any budgets then you’ll see a form where you can add a new budget. If you’ve already added some budgets, click the blue “+Budget” button near the top of the page to bring up the Add Budget form.



Using the options of the form, set up the budget that best fits your needs. Starting out we’d recommend either a Weekly or Monthly budget. You can base when the budget resets around your payday or simply the start of the month. We’d also recommend not enabling the Rollover option at the beginning. By not selecting that option you can really see how well you’re staying under your budget month after month.

To be successful, it’s important to be realistic when determining how much to set your budgets. Start off by setting the budget to about 90% of what you normally spend each month. This way you won’t feel as pressured to cut back dramatically but it’ll still be noticeable in the amount you save.

Monitoring your budgets and being cognizant about your spending:

Now that you’ve set up budgets for your various spending categories it’s time to keep an eye on them and to be mindful of how you’re spending your money. After you’ve reined in your spending by staying under budget you can challenge yourself even further by reducing the budgeted amount even further, or by cutting out spending to some categories entirely.

What to do with all the extra money you’re saving?

Since you’ve got some extra money each month that you didn’t have before, this is a great excuse to pay more toward any existing debts or to save it away for a rainy day fund or retirement. We’d recommend first paying off any credit card or other small debts first using our Debt Snowball tool to manage your debt.

A great way to master money management is to first know where your money is being spent. Once you can track where you’re spending your money, you can find ways to cut back and save where necessary. The Reports section in ClearCheckbook is a perfect way to make a step toward good money management.

Once you start entering transactions into ClearCheckbook, the Reports section will start to show you various charts and reports that help you visualize where your money is going. The reports are broken down by your accounts and spending categories.

The account reports show you your overall spending vs. saving, plus a breakdown of your spending vs. saving for each specific account. Below the reports are some information that show you how much you spent and saved each month so you can see whether you saved money or lost money that month. You also have the option of viewing your account reports as line charts (default) or bar charts.

Next are the category reports. There are a few different kind of reports within this section. The first one is the Line chart that shows your spending in all categories compared to each other. You can pick and choose which categories you would like to see visualized if you only want to compare a select group of categories. Below this is a textual representation of your spending in each category for the last 12 months. The category reports also feature pie charts that show percentages of your spending per category for each month. You can also view text only category reports that breakdown your spending even more.

There are also a lot of premium features available in the reports section. The most noticeable feature is the ability to view reports that go back as far as you have transactions. Without the premium membership you’re limited to the last 12 months. The premium membership also gives you access to some advanced reporting tools and a custom report generator that allows you to use the Search tool to create reports that are exactly tailored to your needs.

By actively adding transactions and monitoring your reports, you can get a real handle on your money management. Even if you feel like you are always saving enough money each month, you might be surprised when you realize just how much money you’re spending in certain areas. Cutting back on certain things to save more money is always good when it’s possible. Give the reports a try and get your money management under control.

Our Estimated Future Balances feature is a great money management tool. We project your balances to a future date by using the Reminders and Recurring Transactions tool, any post-dated transactions you’ve entered, and by letting you set an optional average monthly spending and saving on top of those other amounts. We then display a running list of transactions and balances so you can see how your future balances look over time.

To access the Estimated Future Balances money management tool, you’ll first need to be a premium member on the site. After that, simply click on the Tools option in the navigation and then click on Estimate Future Balances. This tool has a basic search form that lets you select a few filtering options. These options include a date to project your balances to, any additional withdrawals per month, any additional deposits per month and what account you want to project your balances for.

Once you enter your data into the form, click on Estimate and you will be presented with a report that shows how your balance is affected by future transactions from the current day until the future date. Below that is a list of all the transactions that affect your future balance, plus a running balance so you can see how each transaction affects the balance.

Below the list of transactions and running balances is a monthly breakdown of how your future balances will look at the end of each month between the current date and the date you’re projecting your balances to.

Again, the future balances tool includes any transactions that are included in your register and are dated in the future. It also includes any recurring transactions you’ve entered into the Reminders and Recurring Transactions tool. We also know that you probably have a good idea of how much miscellaneous spending and saving you have each month, so on the Estimate Future Balances tool, you can use those fields to enter how much (in addition to the recurring transactions and any post dated transactions) you spend and save each month.

The Estimate Future Balances tool is a great money management feature that is extremely easy to use and provides you with some very helpful information. It gets even more powerful if you enter your upcoming and scheduled transactions into our Reminders and Recurring Transactions tool.

Whether you’re trying to save up for a big purchase and need to know when you might be able to afford it, or you’re just curious how your current spending and saving habits will affect you in the future, the Estimating Future Balances money management tool is a great way to easily see this information.

A great way to get started with ClearCheckbook money management is to import some of your old transactions into the site so you have a little bit of spending history available. We offer the importing of QIF, OFX and QFX files for free, and the addition of CSV files if you’re a premium member. Most banks, financial institutions and other money management software will allow you to export to one of those formats.

To import a file, click on the Tools link in the main navigation and then click on Import Transactions. You start by selecting your QIF, OFX, QFX or CSV file and loading the file. The next page lets you tell ClearCheckbook what fields from your imported file you would like matched to fields we recognize. We do our best to automatically assign all the fields, but depending on who generated the imported file, they could be different. Next, you have some options for the imported file, such as a date range, date format and whether or not to import all of these into a specific account. Once you’ve filled out all the information here, click the Import button.

After clicking the Import button, you’ll be taken to the Verify Imported Transactions page. This is where you can look over and verify all of your transactions before fully adding them to your transaction register. This is a good time to make sure the dates are formatted correctly and all of the fields matched up correctly. A common mistake is sometimes people match up a payee or memo field with the category field and end up importing hundreds of categories on accident.

If you’re a premium member, you can also use the “Check for Duplicates” function to see if any of the transactions you’re importing are already in your transaction register. On the Duplicate Transactions page, you can change a few filter options to make the duplication checking more strict or more relaxed. We’ll show you a list of all possible duplicates and you can choose to remove any of the duplicate imported transactions before they’re added to your register. Money management is difficult if you’ve got duplicate transactions!

The final step is to add the transactions to your register. You can add every transaction or just the ones you select. Before you fully import the transactions, you can select the “Mark these transactions as jived” checkbox if you want to let the system know that all of these transactions have cleared with your bank statement. If you want to start over, simply click the Delete All Imports button and you an start the process over.

Again, the Import functionality is a great tool to get started with money management, but after importing your initial transactions, the best thing to do is manually enter all of your transactions whenever you buy something or make a deposit. That way you have a better grasp on your finances and it makes money management easier.