How to improve your credit when living paycheck to paycheck

If you find yourself perpetually short on cash before payday, you’re hardly alone. 

Waiting for the next influx of money so you can stock the fridge, satisfy bills and cover your rent or mortgage payment is not only stressful, but it can lead to serious credit problems. Many people turn to credit cards and loans to make ends meet during tough times. However, doing so can lead to even worse anxiety as those bills come due—and your credit rating will take a turn for the worse if you can’t pay. 

Here’s how to simultaneously make ends meet and hike up your credit rating. 

Step 1: Know where your money is going now

It’s very important to obtain a precise idea of where your income has been going so you can determine what you can reasonably cut down.

To get an accurate picture, make a budget and include categories for what you might spend on both a regular and an occasional basis. If you find expenses exceed your income, you’ll immediately understand why the paychecks don’t seem to be coming in fast enough. That’s OK. Consider it as a signal you need to make some positive changes.

Step 2: Close the shortfall

You may notice that not every expense on your budget is a crucial one, so start evaluating which ones you can feasibly reduce or even eliminate. Your aim should be to close the shortfall and, if possible, have at least a little cash left over for savings and emergencies.

For example, if you discover that you’re running a $200 monthly deficit, but you’ve been spending more than that on a combination of dining out, entertainment and other non-necessities, shave those line items down to a reasonable sum. 

Step 3: Don’t borrow trouble

It’s common for people who are experiencing financial stress to turn to credit products for relief. Resist — especially steer clear of such subprime products as payday loans and car title loans. Using them likely won’t solve the underlying cash flow issue, their interest rates are excessive and they come with severe consequences for not paying. 

As for credit cards, be careful. You may not be able to make the payment by the due date, which will be noted on your credit report and cause your credit scores to sink.

If you do charge, you can ensure the activity will help your credit scores rise by always paying the balance in full and on time. 

Step 4: Increase your credit rating

As you’re working on closing the financial gap between paychecks by reducing expenses, focus on getting your credit history in a healthy place. Check your credit report and then take a look at your credit scores.

  • Clear up any errors. If you spot any errors on your credit report, you can dispute them for free. Investigations take about a month and if the data is removed, your credit reports and scores will automatically improve.
  • Be prudent about pursuing new credit products. When you apply for a credit card or loan, the lender will add a hard inquiry to your credit report. For a FICO® Score*, one additional credit inquiry might take less than five points off, but they have a greater impact if you are new to credit or only have one or two accounts.
  • Also, concentrate on the factors that matter most to the credit scoring models: the way you pay and the amount you owe. Payment history has the biggest impact on your credit scores, counting for 35% of your FICO® Score, so it’s important to pay your bills on time every month. 

For more information about improving your credit score and living on a budget, see the following articles:

*FICO® is a registered trademark of Fair Isaac Corporation in the United States and other countries. Barclays and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act.  Barclays and Fair Isaac do not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. FICO and “The score lenders use” are registered trademarks of Fair Isaac Corporation in the United States and other countries.

A credit score is a 3-digit number calculated using information on a credit report that serves as a numerical representation of a person’s creditworthiness. A credit report is a summary of your credit activity such as the payment history and status of your credit accounts which potential lenders use to offer you credit and on what terms. Your FICO® Credit Score and key factors are based on data from third-party providers who are not affiliated with Barclays. Barclays does not guarantee the accuracy of any credit information that is provided to you by these third parties.