The practice of credit reporting, or the collection and sharing of information about an individual’s credit history, dates back to the 1800s. By the late 1950s, financial institutions started using computerized credit scoring and began consolidating dozens of credit bureaus into three.
Now, our credit score decides whether we can loan money, open phone contracts, buy a home, or rent an apartment. While most agree that building creditworthiness is essential, the process of doing so is often confusing. Fortunately, apps make it fun to build credit and pay down debt.
5 Ways Apps Make it Fun to Build Credit and Pay Down Debt
There are several apps available that make it fun and engaging to pay down debt and build credit. Here’s what most money-based apps do to keep you interested in budgeting and saving.
1. Apps Can Use Suggestions to Improve Credit
Credit scores are often calculated using FICO scores, which break your creditworthiness into 5 parts: payment history, used credit vs. available credit, credit history, records, and inquiries. This breakdown makes it look easy to build your credit, but the process is long and filled with traps.
A money management app can pull your credit score and offer suggestions for ways to improve. For example, SoFi’s credit building app may suggest you apply for a SoFi credit card if you don’t have enough available credit. They may also recommend you pay your bills before the deadline.
What’s more, an app can tell you what not to do. If you opened a credit card recently, the bank would run a hard credit check, which can affect your credit score if you run too many inquiries.
2. Apps Can Offer Vital Educational Resources
While the average American rates their level of financial literacy as 6.2 out of 10, 36% or one-third of Americans are actually financially illiterate. Of the group studied, Millennials and Gen Z are the most illiterate, but keep in mind that most Gen Zers are under the age of 18.
However, some reports show that nearly 45% of Americans are financially illiterate. Even if the estimate is on the low side at 36%, that means 75,286,113 US adults can’t make a budget.
Financial illiteracy means you’re more likely to make financial mistakes or assumptions. This problem is made worse when a person is overconfident about their financial abilities or doesn’t know how or who to ask for help. Apps can remove these barriers the moment they load them.
When we know how to spend our money, we can be more responsible with it. Apps can make learning about our finances fun, which is great for users who find the topic scary or boring.
3. Apps Can Use Gamification to Motivate You
Gamification is a method that uses competition, challenges, and rewards to motivate behaviors. It can be used to motivate people, increase engagement, and help them learn faster and better.
Apps can make it fun to save money by incorporating game-like elements such as awards and points. For example, some apps allow users to set savings goals and track their progress toward achieving them. Users can compete against other users to see who can save the most.
Once you set up an app, it’ll prompt you to set a savings goal. Simply watching your savings grow can be gratifying, but if it isn’t, you can set up rewards that translate beyond the app. When you hit that goal, you could go out to a movie, get takeout, or purchase something small.
4. Apps Can Automate Most of the Process
An APA Stress in America survey found that 72% of Americans are stressed about money.
This stress can cause us to avoid looking at money or taking charge of our budget. Tackling this fear is the best remedy, but that isn’t always easy. In the meantime, you can automate most of your budgeting, debt payments, and credit-building process with mobile applications.
First, you can set up automatic deposits between your checking and savings accounts. Then, consider automating bill payments. Finally, automate transferring money to your 401(k)/IRA.
Not only will automation keep you on top of your spending, but it’ll help you face your fears.
5. Apps Can Help You Stay Aware of Your Habits
Money management apps are designed to keep you aware of your spending habits. The switch to plastic has made it difficult to track how much money we have or don’t have. You should load up your banking app once a day to check for any suspicious activity, like fraud or ID theft.
But how can you build this habit? Simply set up notifications that ping you when your account balance is below a threshold. You can also ask the app to send daily reports to your email. If you need to cut back right away, put a daily low spending limit on your debit/credit accounts.