Credit Repair, Taxes and Budgeting: A Big Season Ahead for Graduates

Today, recent college graduates likely have a lot on their plates in terms of getting themselves ready for a strong financial future. While it has never been easy for these young adults to gain financial independence and set themselves up for success, it may be even more difficult these days, and particularly during this time of year.

Early in every calendar year, a lot of financial considerations can come up all at once, and young adults who may not be prepared for these issues can find themselves in a significant amount of trouble. Many have never paid taxes on their own before, but are now fully independent adults for whom these worries must necessarily exist. Therefore taking the time to make sure all aspects of preparation for filing season are addressed — such as getting all the proper documents from their employers and working with tax professionals to make sure their returns are in order — is of the utmost importance at this time.

But the first few months of each new year also gives recent college graduates the chance to do a little house cleaning when it comes to their finances in general, and that includes taking the time to both set up a budget and figure out how to repair credit mistakes they might have made over the course of the previous few months. Budgeting is obviously key to living a healthy financial life, as young adults should try to keep in mind that they should try to do more than just scrape by every month, but rather put money into savings and have enough left over for other considerations as well. That might even include credit repair.

Why healthier finances are conducive to improving credit
If a young adult has had credit problems in the past — like missed payments, large debts, and repeated rejections for new accounts — they likely aren't alone, but they should also take the time to use their new year's budgeting efforts as a way to evaluate what they can do to repair credit. For instance, one thing many people who are saving diligently might not know is that their added debt can imperil their financial security in a number of ways, so rather than putting an extra $100 into savings every month, it might be wiser to contribute that money toward their various outstanding balances every month as a means of slashing debt and improving financial standing in general.

For instance, the amount of debt being carried by a person at any given time plays a huge role in determining their credit score. Specifically, the amount they owe to their various lenders versus their total overall limits, viewed as a percentage — known as a "credit utilization ratio" — makes up a full 30 percent of a person's score. But there are many misconceptions about how lenders would prefer that borrowers handle debt, and some may believe that they're considered better accountholders if they have a lot of debt. However, that's not the case. Consumers who want to max out this portion of their score should try to keep the amount they owe to about 30 percent of the combined limits across all their cards, as any more than that will begin to eat into their standing significantly.

It is therefore vital that recent graduates trying to get their credit in order make all possible efforts to slash debt to a reasonable level, which should also improve the overall state of their finances.

The other major credit mistake that massive debts can lead to is missed payments, because having large obligations means higher minimum payments which may be more difficult for young adults to meet. Those who have missed a payment, even by a single day, have likely taken a massive hit on their credit rating, because payment history alone makes up 35 percent of a person's rating. And unfortunately for those who have already missed a deadline or two, the best way to fix the damage done to their credit by such a mistake is to make several months or more worth of on-time payments, as well as working with a credit repair law firm to challenge the negative items, so that the errors are shown to be isolated incidents, and likely deleted from the credit reports.

What credit repair can mean for borrowers
Once a young adult has done all the necessary work to improve credit in general, it's time to reap the rewards. These can include not only access to a larger number of better accounts, but also less expensive terms on those accounts. That means lower interest, fewer fees, and perhaps even more beneficial rewards perks.

Of course, recent graduates looking to fix credit should also take the time to order copies of their credit reports, and check them over for any unfair markings that may be listed. If any of these entries are discovered, working with a credit repair law firm may help to correct the issue as quickly as possible.