Regardless of your situation, there are always steps you can take to improve your credit score. In this article, we’ll show you how you can achieve this with some planning and discipline.
Tip: Check your credit ranking by clicking here.
How is your credit score calculated?
According to Ayanda Ndimande, head of branch lending at Sanlam, your credit score is based on how well you meet your credit obligations – both currently and historically. If you miss your payments, your credit score will suffer.
Another factor is how often you use credit made available to you, and how much you use. If you use more than 50% of your credit card balance or loan, your credit score will drop.
The length of time you have actively used credit, Ndimande says, also has an impact on your credit score. “The longer the history of credit and on-time payment, the better the score. It is good to have debt that is well managed and is taken for good reasons,” she says.
Lastly, the type of credit taken has an impact on your credit score. Ndimande says a mixture of long- and short-term credit can be favourable.
How can you improve your credit score?
1. Pay your instalments on time
Are you paying your instalments on time? If not, it’s time to make amends. According to Experian, credit bureaus normally retain your payment information for up to three years, even if you’ve paid the accounts. If you want credit you can still negotiate with lenders, but you will obtain it at a higher rate.
Some lenders report late payment after 30 days have elapsed. If you’re never late with your payments, you’ll see your credit score steadily going up.
2. Lodge a dispute
Check your credit report regularly to ensure it’s accurate. If it is not, dispute it.
3. Create a repayment plan
If you’ve got a sizeable amount of debt, create a repayment plan. You may want to reduce your spending so that you can free up cash for your debt. You can also consolidate your debt into one amount. This can help you not only more easily manage your debt, but also decrease instalments and interest amounts. When you’re paying lower instalments, the chances of missing your payments are reduced.
4. Don’t use more than half of your available credit
If your credit provider offers you a loan of R50,000, don’t accept more than half of that, unless of course you really need it. The loan providers may try to persuade you to take the full amount, but don’t fall for that. Take what you asked for and what you need, and consider the ramifications on your credit score.
5. Don’t apply excessively
In your quest to diversify your credit profile and increase your score, you might actually end up damaging your score. Making hard enquiries will make creditors think you rely too much on credit. Even if you don’t accept it, your credit report will show that you’ve applied.
6. Keep at least one account open
This can be your store account or your credit card. It’s tempting to close all your accounts so that you can be debt-free. This is not a solution as it will be impossible to track your payment history. Experian notes that you must display good repayment behaviour for at least six months, and up to a year, in order for your score to build up significantly.
Click here to see your credit report.