You have probably realised by now that there is nothing more important than having a good credit score. Your credit score is the first thing that all lenders and creditors will look at before granting you any form of loan, whether you are looking at applying for a mortgage, personal loan, clothing shop account and even applying for a job. We as South African citizens should know the importance of having a healthy looking credit score in order to maintain a normal lifestyle.
The sole purpose of your credit score is for creditors to see what level of risk you are before they lend you any kind of finance. The creditors will pull a credit check on you when you apply for any form of loan or finance. They will then decide if you are credit worthy or not. The better your score the better the chances will be of you obtaining the loan. A good credit score will also insure that you get cheaper interest rates.
In South Africa we have two main credit reporting agencies. They are called TransUnion ITC and Experian. They see everything; they will adjust your credit score on all the credit you take out and all the debt repayments which you are making. Creditors will choose which credit reporting agency they will use to get your credit report.
It is of utmost importance that you work on your credit score before applying for any form of credit or loans. Banks and other financial institutes are very cautious when it comes to lending, and it is understandable due to the high debt levels of South African consumers.
To follow, is 14 steps which you should implement in your life in order to repair your current credit status:
1. Make your payments on time
You should know that your payment history can take up to 35% of your credit score. You will have to make sure that you make your monthly debt payments on time and in full.
2. Pay attention to your credit cards first
It shows a lot if you make regular payments on your credit cards first. Keep the balances as low as possible. Credit cards are also most likely to have the highest interest rates.
3. Avoid going to court
Make sure that you never get charged with a court order. You will make a lot of damages to your credit score. And these remarks on your credit score can take years to delete.
4. Don’t be brave by taking on to much debt
I would suggest that every South African household should not have more than two credit cards and more than two major debts like a home loan and car finance. You should never max out your credit cards. Always try to keep your credit balance below half the credit limit; this will count in your favour. Never take out more debt while still paying of other debts. A rule of thumb to keep in mind is that you should try not to use more than a third of your gross income towards debts.
5. Keep your credit limits high and your due amounts low
Never ask creditors to lower your credit limits. Rather just minimize the gap between your due amount and your credit limit. The credit agencies love to see that you are closing the gap between the two. It will always be cheaper for you to pay of the debts with the highest interest rates of first, but I will suggest that you rather spend your money on the debts which is closest to their limits.
6. Close unused credit accounts
the less credit lines you have against your name the lower the risk you are towards lenders. You should close all credit accounts that you are not using and tell the creditors to inform the credit bureaus that you have closed the accounts and not them.
7. Keep credit enquiries to a minimum
Seeking for credit can take up to 10% of your credit status. You should know that every time somebody does a credit check on you, will it have a negative impact on your score. So avoid applying for credit while you are in the process of improving your score.
8. Don’t through your debts from one card to another.
This might keep the creditors off your back, but it won’t improve your score on the long run.
9. Credit repair agencies can cost you thousands
Try to avoid seeking help from a credit repair agency. They can charge you over R5000 to repair your credit score, and there are lots of scammers out there. So only seek help from them if you are really not able to help your self.
10. Avoid using revolving credit accounts
Revolving credit is debt which you can pay back on your own time. These accounts normally have high interest rates and will cause damage towards your credit score.
11. No credit history can be bad for you
We all know by this time that by having too much credit is bad for you. You should also know that having to0 little can also be harmful. The amount of time that you are a credit consumer can take up to 15% of your total credit score. The longer you have been an active credit consumer the easier it is for creditors and lenders establish your true credit worthiness. If you have been a credit consumer for a short while then banks and lenders will see your credit score as inaccurate, meaning that you have done to little to prove that you are worthy of any additional credit. You might find that you cannot obtain a loan due to you not having enough credit. I would suggest that you option for a credit card first. They are easier to obtain, but make sure that you will be able to afford the rates and fees. There are many online comparison sites that can help you to find a low rate interest credit card. Just make sure you pay it of in full before the interest rates starts kicking in.
12. Check your partner’s credit
If you are married then you should know that creditors might take a look at his or hers credit rating. If the other partner’s credit is very low then it might affect your loan applications as well.
13. Don’t wait for the creditors to contact you
If you see that there is trouble ahead, make sure that you contact the creditors as soon as possible. If you see that you will not be able to pay of your debts on time, contact them and make arrangements.
14. Get a copy of your credit report
I would strongly suggest you obtain credit reports from both major credit bureaus. You have to know exactly where you are standing on the credit ladder before you can attempt to improve your credit score. You should also know that more than 80% of credit reports contain errors. Go through both reports and make sure that there is no incorrect information on them.