Managing your credit score
Your credit score is an important part of your financial profile. It is what helps banks, finance companies and other credit providers decide if they should lend you money.
If you have a low credit score you will be considered high risk and as a result you may not be given a loan or you could be charged a higher interest rate to compensate for the additional risk.
Credit bureaus calculate credit scores, but this doesn’t mean you’re not able to do anything about managing your score. Here are some tips that could help you improve your credit score, avoid a low credit rating or maintain a good one.
Check your credit report: South Africans are entitled to a free credit report each year. You can get one from any of the major credit bureaus. It will tell you your score and more importantly you can check for any mistakes. Make sure there are no late payments listed incorrectly and that the amount owed on each credit account is correct.
Pay on time: Your payment record has a significant influence on your credit score. Even paying a few days late can negatively influence your rating. If you have to make regular payments, consider setting up a debit order so you don’t risk forgetting about or missing a payment. Alternatively put a reminder in your diary or calendar.
Reduce what you owe: Use the credit report to list all your debts. Arrange these according to the interest rates charged on each. Try to pay off the ones with the highest interest rates first, while maintaining the minimum payments on your other accounts.
Pay off debt rather than moving it around: Limit revolving debt such as credit cards. Don’t apply for credit cards or open store accounts to increase your available credit as this could lower your credit scores.
Tell creditors if you have a problem: Keeping your creditors informed if you’re having difficulties won’t rebuild your credit score, but if you can negotiate a payment schedule your score should improve over time.
Outstanding debts will stay on your record: If an account is overdue it will negatively affect your score. Making any payments or paying it off completely won’t clear your credit record, but will improve your credit score. Be aware though that information about your payment profile can stay on your record for up to five years. Closing an account doesn’t make the payment history go away and it may still be reflected on your credit score.
The bottom line is to remember that your score is calculated based on information found in your credit report. This comprises your payment history, amounts owed and activity on an account, the age of your accounts – the older the better - judgements and defaults and enquiries about your credit worthiness.