Part 2 of 2:
This is a continuation of the post: (link >>) Do you really know what your Credit Score means?
Nothing’s worse than applying for a loan to buy a car, start your own business or purchase your dream home, and promptly getting declined. The most common reason for this is having a poor credit score. It’s therefore important to understand what drives your score, and more importantly, how to improve it.
Your credit score is calculated based on positive and negative information on your credit report. This information is compared to millions of other individuals before determining your score. If you have a low score, it’s not the end of the line. By improving your credit behaviour; your score will improve as well. Let’s look at how you can do this.
Your first point of call is your credit report. It’s grouped into five different categories and if you make improvements in all five, you will improve your score.
1 Payment History
– Make sure you pay all your accounts on time.
– If you are having trouble making the payments, make sure that you contact your creditors to arrange a more affordable payment plan. Doing this won’t increase your score, but it is certainly better than missing a payment.
2 Amounts owed / Account Utilisation
–The less you owe the better.
– Keep how much you owe less than 30% -35 % of your credit limit. So if for example you have a credit limit of R1000 on your store account, try to keep what you owe below R350.
– Do not pay your debt with debt. Moving your owed amounts around is a negative indicator and will likely decrease your score.
– If you owe the same amount but have fewer credit accounts to your name, the better your score will be.
3 Age of Accounts
– The longer you have had credit for, the better for your score. If you have never taken out any credit before, this will be your initial stumbling block since you have little evidence to show that you can manage credit well. So wait… and build up a good credit history.
– Do not open lots of new accounts in a short space of time. This lowers the average age of your credit accounts, especially if you have not had credit for a significant period.
– Do not close your account in an attempt to hide it. It will show up on your credit report and may have a negative impact on your score.
4 Judgments and Defaults
Rather than improving your score, these tips will make sure your score is not lowered.
– Resolve matters of non-payment before you have to go to a court of law.
– Do not ignore any court summons.
– Make sure you do not miss any payments (i.e. default)
– Get a credit card and use it responsibly. Responsible usage of a credit card improves your score more than not having a card.
– Do not make many applications for credit in a short space of time. If shopping around for the cheapest loan, do it within a condensed period of time.
– Similarly do not apply for different kinds of credit in a short space of time. It can be an indication that you are under financial stress.
It is good practice to check your score regularly. You can approach any credit Bureau for a free credit score every 12 months. This will keep you up to date on new developments on your report. It will also alert you if any fraudulent activity has been done using your name.