Tips to improve your credit score
What is a credit score and why is it important?
According to RCS, a credit score is a three-digit number, often between 300 and 850, that represents the risk that lenders take when you borrow money from them.
Your credit score is calculated using a formula, taking into account your payment history and payment period, the balance owed, debt levels, and the number of credit accounts you have. This information is collated from credit reports gathered by credit bureaus for lenders to assess.
Credit scores range from exceptional to poor and can influence the interest rate you would be offered, as well as whether your application for credit is approved or declined.
Credit scores ranges and what it means
Under 300: No Credit
300-579: Poor
580-669: Fair
670-739: Good
740-799: Very good
800-850: Excellent
How do I know what my current credit score is?
Click here to get a free credit score from our partner, Experian.
How do I improve my credit score?
There are a number of ways to improve your credit score, thus increasing your chances of getting approved for credit (and potentially reducing your interest rate). The most important thing to do for boosting and maintaining your credit health, according to our partner Investec, is to use the credit you already have responsibly and follow the 10 tips listed below.
10 Tips to improve your credit score
Review your credit report regularly to see that all information is up to date.
Remedy any negative listings: If you have any defaults or judgments against you, settle these outstanding amounts as soon as you can. After this is done, ensure that you obtain proof of settlement, which you can use to clear the negative listing with the relevant credit bureau.
Make repayments on any credit accounts by the due date. A good way to be disciplined in doing this is to set up standing debit orders where the payments are made automatically each month.
Make sure you pay the full instalments every month. For example, only paying half the instalment one month and then the remaining payment the following month will prejudice your credit score.
Have a repayment plan you can realistically manage. If you’re struggling to repay your debt each month, try and negotiate a new repayment plan with your credit provider – for example by reducing the monthly repayment amounts by increasing the term of the loan.
Close any credit accounts that you’re not using, such as store cards from a shop you no longer buy from regularly, or old credit cards.
Reduce your overall credit balance as much as possible. If, for example, you receive an unexpected lump sum or a bonus at the end of the year, use part or all of it to reduce the overall credit amount that you owe.
Limit the amount of credit you’re using. Aim for a ratio of 35%, where if you have a credit card with a R10 000 credit limit, you aim to keep the balance at R3 500 or less on any given month.
Limit the number of credit applications you make. Keep in mind that your credit report shows how many credit applications you’ve made in the last two years. It may sound counterintuitive, but if you shop around for too much credit at once, it may look like you’re struggling to manage the amount of debt you currently have.
Avoid too much unsecured debt: Secured loans like a home or car loan are always preferable to unsecured loans, so make sure that the balance is weighted this way in your financial portfolio.
How long does it take to improve your credit score?
Improvements usually start showing up on the credit record after around three months, but it’s recommended to wait about six months before reapplying.
Sources: Investec.co.za; RCS.co.za