Welcome to Fix My Finances, Yahoo Finance’s new personal finance series. Each episode, we take a look at one viewer’s financial state of the union and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
On this episode we meet Max, a 27-year-old Floridian who doubled his salary recently and wants to use his income toward repairing his damaged credit.
Recently, Max ditched the roommates and moved into his own place after getting a better-paying job as a small-business finance banker. He’s never had a budget or a savings plan, having lived paycheck to paycheck his whole life. Now that Max is making more than he’s spending, he wants to put his earnings to good use. But before he can think about investing in his future, he has to address his credit and debt situation.
His credit score has suffered through several mishaps: his car was repossessed; he’s paying off around $5,000 on two credit cards; and he’s paying off $10,000 in student loan debt.
FIRST THINGS FIRST
Max’s No. 1 priority should be to pay his bills on time, all the time. Payment history accounts for more than a third of his credit score. A single missed payment could knock him down over 100 points. He should set up auto-pay for his credit cards and car loan so he never misses another payment.
Next, if a parent has excellent credit, Max should ask to become an authorized user on a card that has a long credit history. He shouldn’t actually get a physical card and use it, but just having his name attached to the account may help his credit score.
Finally, Max should ask to raise his credit limit on both his credit cards. This way, the amount of credit he’s used versus the amount of credit available is much smaller. It’s best to have a ratio of less than 30%. But if he wants to boost his score more quickly, he should aim to keep that number below 10%.
Bottom line: Max must deal with his current situation before focusing on a future crisis.
Starting a savings account may be a great idea in theory, but he needs to dig himself out of debt before anything else.
Watch the video to learn more about how Max can fix his finances.
Want to be a part of this new series? We are looking for people in their 20s and 30s who need a money makeover. Apply here.