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20 Ways To Improve Your Credit Score

14 October 2019 | 2 comments | Posted by Che Kohler in Money Talks

Improve your credit score in South Africa

In the modern world, we all need to make big-ticket purchases from time to time. If you're not lucky enough to be extremely cash-rich, then homes, cars and your studies will all require finance. This financing method means borrowing money from a creditor.

A credit supplier looks favourably on clients who have a good track record of payments. All debtors have a predefined score attached to them, known as a credit score. A credit score is used to determine the risk factor involved in lending to the individual.

The higher your scores, the more likely you are to qualify for loans and credit cards at the most favourable terms, which will save you money over time.

Checking your credit score is simple but maintaining your credit score or improving it is another ball game altogether. If you're looking for ways to improve your credit ratings, then these tips are what you need.

1. Pay your bills on time

This one is pretty straight forward but its easier said than done for many people, but you can positively influence this credit scoring factor by paying all your bills on time as agreed every month.

Paying late or settling an account for less than what you originally agreed to pay can negatively affect credit scores.

Make sure all bills are paid regularly such as credit card bills or any loans you may have, such as auto loans or student loans, but also your rent, utilities, phone bill and any other regular payments you have set up.

Once you are behind on any payments, bring them current as soon as possible. Although late or missed payments appear as negative information on your credit report for seven years, their impact on your credit score declines over time.

So you still have the ability to redeem yourself if you keep your nose clean as older late payments have less effect than more recent ones.

2. Making timely utility and cell phone payments

If you've been making utility and cell phone payments on time, there is a way for you to improve your credit score by factoring in those payments.

This is not a given but can be set up with a number of services providers as an opt-in product. Consumers can allow credit score facilities to connect to their bank accounts to identify utility and telecom payment history.

These payments can then be added to your credit score rating.

3. Pay off debt and keep outstanding balances low

The credit utilisation ratio is another significant number in credit score calculations. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit.

You can positively influence your credit utilization ratio by:

  • Paying off debt and keeping credit card balances low.
  • Becoming an authorised user on another person's account (as long as they use credit responsibly).

4. Open new credit accounts when needed

Don't open accounts to have a better credit mix as it probably won't improve your credit score. Having additional credit can harm your credit score in multiple ways, from creating too many hard inquiries on your credit report and tempting you to overspend and accumulate unnecessary debt.

5. Don't close unused credit cards

Try to keep spare credit cards open—as long as they do not cost you money in annual fees. This may sound strange but closing an account may increase your credit utilisation ratio. Owing the same amount but having fewer open accounts may lower your credit scores. Review your credit ratio and from there you can make the choice to keep or close your additional credit cards.

6. Don't apply for too much new credit

Opening a new credit card can increase your overall credit limit, but the act of asking for loan creates a hard inquiry on your credit report. Too many hard questions can negatively impact your credit score.

While the effect will fade over time try to limit your inquiries as far as possible. Remember that a hard inquiry will remain on your credit report for two years.

7. Dispute any inaccuracies

You should check your credit reports for incorrect information which could drag your scores down. Verify that the accounts listed on your statements are correct. If you see errors, dispute the data and get it corrected right away.

8 Debt consolidation loan

If you're struggling to manage all your debt with various creditors then a debt consolidation loan can be the right solution. This strategy involves paying off your smaller debts with a single loan that has a more extended repayment period.

Having lower monthly instalments can make repayments more manageable, thus avoiding late payment charges and preventing any further damage to your credit score.

9. Be patient

You won't raise your credit score overnight, which is why one of the best ways to achieve an excellent rating is to develop good long-term credit habits.

10. Time your applications carefully

Every time you apply for a new line of credit, a hard inquiry is pulled on your report. This type of inquiry lowers your score temporarily. Research your likelihood of approval to ensure you're the right candidate. You don't want to risk lowering your score for a denied application. Remember enquires can remain on your report for up to 2 years.

You should also refrain from applying for several credit cards within a short time frame or before taking out a large loan like a mortgage.

When you shop for a mortgage, auto or personal loan, you can keep hard inquiries to a minimum by making rate comparisons within a short period.

11. Take advantage of score-boosting programs

The number of entries and the average age of your accounts are both critical factors in helping lenders determine how well you handle debt.

You can use credit monitoring services that can enable more profound connections with your banking data. This will add information to your score, such as checking accounts as well as savings accounts. This data can then be considered alongside your report when calculating your score.

12. Leave old debts on your report

Once you finally get rid of student debt or pay off your auto loan, you may be impatient to get any trace of it wiped from your report. But as long as your payments were timely and complete, those debt records may help your credit score by having more line items to calculate your risk profile.

13. Limit requests for new credit and 'Hard' Inquiries

There can be two types of inquiries into your credit history, often referred to as "hard" and "soft." A typical soft inquiry might include checking your credit, giving a potential employer permission to check your credit, checks are done by financial institutions with which you already do business, and credit card companies that review your file to determine if they want to send you pre-approved credit offers. Soft inquiries will not affect your credit score.

Hard inquiries, however, can affect your credit score—adversely—for anywhere from a few months to two years. Hard inquiries occur when you apply for a new credit card, a mortgage, an auto loan, or some other form of new credit.

Be aware of how many inquires are being done to your profile and try to limit or spread out inquires as far as possible

14 Aim for the 30% rule or less

Credit utilisation refers to the portion of your credit limit that you're using at any given time. After payment history, it's the second most important factor in credit score calculations.

The simplest way to keep your credit utilisation in check is to pay your credit card balances in full each month. If you can't always do that, a good rule of thumb is keeping your total balance at 30% or less of your total credit limit.

You can then work that down to 10% or less, which is considered ideal for improving your credit score.

Another way to improve your ratio is with an increase in your credit limit increase. Raising your credit limit can help your credit utilisation, as long as you don't go spending and running up a larger balance.

15. Diversify your accounts

Look to improve your credit mix by building a healthy history of various forms of credit. Financial instruments such as a mortgage, auto loans, student loans and credit cards all help. These records normally count towards 10% of your credit score. Adding another element to the current mix helps your score, as long as you make on-time payments.

16. Set up payment reminders

Consistently paying your bills can raise your score within a few months so its important to make sure you hit those regular intervals. Write down payment deadlines for each bill and make sure you have cash available. Create a planner or calendar and set up reminders to notify you to pay creditors.

17. Pay more than once in a billing cycle

You don't have to stick to the set payment arrangement and creditors are happy to get their money back earlier than expected. If you can afford it, pay down your bills every two weeks rather than once a month. By improving the frequency of your payments you enhance the use of your credit and improves your score.

18. Contact your creditors

If you're going to fall short on a payment it will reflect badly on your credit score. Making sure you have good lines of communication with your creditors is important at this stage. If you feel you're going to miss a payment contact your creditor immediately to let them know.

Try to discuss a late payment or a reduced payment and address the issue before it reflects negatively on your credit score.

19. Plan when you need credit

Credit applications result in enquiries on your credit report, and too many could negatively impact your score. By planning you can limit the amount of enquires you make which important credit application. Having the foresight will improve your chances of being accepted, which will help keep your credit score intact.

20. Look out for fraud

Financial crime and fraudulent activity are not uncommon with today digital banking services. If you have been a victim of identity theft, there will be evidence of it on your report. These fraudulent transactions could be new credit accounts you didn’t set up or enquiries on your report you don’t recognise. By regularly monitoring your credit report, you can check for signs of financial fraud and reach out and have them removed from your report.

How long does it rake to rebuild a credit score?

It can typically take between 3-6 months of improved credit behaviour to see a noticeable change in your credit score, but this is not a set rule.

If you have had negative credit practices in the past it will be difficult to make a change any faster. The only exception being the case when negative information on your credit report was a minor issue, like being late with bill payments one month.

It is impossible to put a specific time frame on credit repair but a good rule is to have less harmful information on your report.

  • Late payments
  • Maxed-out credit cards
  • Constant credit applications
  • Bankruptcy
  • Blacklisting

Are all major faux pas that will hold back repair of your credit score. Try to avoid these red flags and keep up healthy personal finance habits and you're score will be sitting pretty when its time to approach a lender.

Tell us your credit score story

Have you started to try and improve your credit score recently? How is it going? Do you have any tips you feel should be added to the list? Share it with us in the comments and let's help South Africans save even more.

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Recommended reading

If you enjoyed this post and have the time to spend diving deeper down the rabbit hole, then we suggest you check out the following posts about improving your finances in South Africa.

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