• When you apply for finance and are told your credit score is poor, you need to investigate why. Most people know it’s a skeleton in the closet: a debt they knew they had but didn’t pay. For others, there is not immediately a valid reason for a poor credit score
• Whichever is the case, it is essential that you take steps to improve your credit score and keep it healthy. Then you can access loans and other financings easily.

What is your credit report?

The credit bureau your potential creditor approaches will give them a credit report on you. The report details your debt repayment behaviour. Based on this, they give you a credit rating.

Do you pay the full amount on your debt installments? Have you ever skipped an installment?

They look at data from financial institutions like banks and loan operators, retail stores, insurers, and cell phone companies. They may look beyond this to places such as satellite TV service providers. A credit report means you can’t hide from debts you’ve incurred but failed to service.

What should you do if you get a poor credit score?

1. Double-check the information

Your credit report information may be incorrect. You can then dispute the credit report. Providing evidence that debts are repaid can change your credit report dramatically. If you don’t have the documentation to prove you paid the debt, it might take longer.

It’s important to check your credit information regularly. Consumers are allowed one free credit check by TransUnion once a year. However, few South Africans make use of this service. Knowing your credit status will help you decide on the way forward.

2. Look at your high debt levels

If you have a lot of debt you’re still servicing, your score will lower. You’ll be perceived as a risk as you are already burdened by debt. Reduce your debt levels before seeking more financing. This means paying off retail accounts and keeping credit card debt to a minimum. Have high credit limits but low levels of debt.

3. Look at your low debt levels

You’ll be deemed a financial risk if you have no debt at all. It may sound strange, but to get debt you need debt. Being a credit consumer with healthy debt habits goes a long way to improving your credit score. If you have no debt, you’re seen as a risk because there’s no track record of your debt behaviour.

The longer the record of your good debt is, the more likely a prospect you are to potential creditors. If you want to establish a debt record, apply for a credit card. Keep up with all the payments and fees.

4. Don’t borrow from Peter to pay Paul

Credit bureaus can quickly pick up if you’re using one credit card to pay off another. This is regarded as risky debt behaviour. It implies that you don’t have the liquid cash from your income to pay off your debts. A debt cycle like this can lower your credit score.

Another tip is to avoid the use of revolving credit. This is credit that you pay back when you can. It looks bad on a credit report because it shows you can’t commit to paying a debt off in a set time. For your own good, avoid revolving credit because the interest rates are high.

5. Pay current debts

If you receive a poor credit score, the best thing you can do is change your debt behaviour. Pay your debts on time and in full each month. After 6 months of doing this, apply for another credit report. It will show that you’ve reformed yourself. This can improve your credit score. If you have debts you cannot pay, do something about it. Seek the help of a financial advisor to avoid court appearances and blacklisting.

• Potential creditors will run a credit check on you.
• A poor debt track record of payment will reflect in your credit score.
• If you feel your credit score is poor, you can dispute it. Records are often incomplete.
• Having little or no debt is a problem as much as too much debt is to your detriment.
• Reform your debt behaviour to show the credit bureau you’re taking improving your credit score seriously.