Keeping a good credit score
Most of us need to incur debt at some point in our lives – it may be for a big purchase such as buying property or a car, or for something smaller such as a credit or store card. Keeping a good credit score works in your favour – manage it well, and it will reward you! Manage it poorly and you’ll pay the price.
What is your “credit score”?
It’s a number that summarises how well you manage your credit and tells a lender how much of a risk you are when you apply for new credit.
There are four main credit bureaus in South Africa, Experian, TransUnion, Compuscan and XDS, and every month credit providers send information through to them.
They compile a credit report which includes all the credit you’ve applied for in the past two years, the credit you currently have, your payment history as well as any court judgements or defaults against you. This is distilled into a single credit score, and the higher your score, the easier it is to get credit and great interest rates.
You can check your score at mycreditcheck.co.za or clearscore.co.za. You’ll also get an overview of any enquiries, all your debt and your payment history.
A score of around 650 and up is considered good so ring in the changes if you’re below that.
Steps to improve your score:
- Check your credit report regularly and report any mistakes.
- Pay on time – Paying on time is a great way to maintain a healthy credit score. Use a budgeting app to keep track or write up a list in your diary around the 25th of each month, so you can be sure to pay on time.
- Pay what’s due – pay the minimum repayment amount and if you can’t manage this, contact your creditors and make alternative arrangements. Being proactive shows you are on top of your finances.
- Settle outstanding debts – if you have defaults or judgements, settle these debts as soon as possible. Once done, get proof of the settlement. A judgement will reflect on your credit report for five years but having proof of settlement can help you when applying for credit.
- Avoid being over-indebted – maxing out your available credit negatively impacts your score so try to utilise around 35% or so of your available credit. As an example, if you qualify for R100 00 worth of debt, try not to have more than R35,000 worth of debt at any point in time.
- Limit the number of enquiries – having multiple enquiries on your account in a short space of time looks like you’re desperate and in need of money, negatively affecting your score.
- Close paid-up accounts – close old store accounts or credit cards if you’re no longer using them.
- Minimise your debt – Reduce your overall debt level as much as possible.
- Long-term credit is best – having long-term credit arrangements (1-year plus) suggests you’re more dependable and improves your credit score.
- Save up for special occasions such as birthdays or a weekend away so that you don’t incur debt for these events. The same for emergencies – having an emergency fund prevents dipping into credit.
- Managing your credit score is an important aspect of managing your money – a lower score means you may pay more interest, wasting money.
Why do that when you can actively manage the situation and make a difference in your pocket?
This article was written by Sylvia Walker, financial planner, speaker and author of smartwoman. www.sylviawalker.co.za
rubies, have you done a credit check before? Comment below to let us know x