In our previous article, we examined what a credit score is and why it is so important for your investment journey.
In this article, we will explore ways to maintain a good credit score or, in the case of a poor credit score, how to improve it.
What is a credit score?
Just to recap, a credit score is essentially a three-digit number allocated by a credit bureau that reflects your creditworthiness. Banks and other institutions use it to determine your ability to repay borrowed money.
The HIGHER your credit score, the greater your chance of securing a loan or bond from your bank.
It is understandable in today’s tough economic climate that you, along with many other people, may have fallen into debt, but it is never too late to take steps to improve your credit score.
Keeping an eye on your credit score
We highly recommend that you continuously monitor your credit score, especially if you are thinking of buying a property, whether it is your first property or not.
It is important to note that your credit score is measured over time.
How to maintain a good score or improve a credit score?
The very first action we recommend you take to improve your score is to ensure you pay all your credit accounts on time, even ahead of time if you’re able to. Even if you are paying the minimum amount due, ensure you are not late in paying the amount.
A late payment is measured negatively and will affect your credit score.
Reducing your debt is also key to improving your credit score. While you are more than likely not able to pay all your debt instantly, focus on paying the debt that has the highest interest implications.
The next action would be to ensure you pay the full amount due on your credit facilities if you are in a position to do so, and not just pay the minimum amount due.
Never consider a small amount owing as not important.
Negotiating a repayment plan with your credit provider
If you are struggling financially and are not able to make the minimum payment, we would advise you to reach out to your bank or credit provider and negotiate a repayment plan. That will provide your bank some comfort that you are committed to paying your debt off, and there is some certainty in their minds that the debt will be paid over a set period.
Forgotten debts and judgements
There may have been a time that a judgement was served against you, and while you may have repaid the debt, judgements are not always removed timeously, although credit bureaus are compelled to remove judgements automatically.
When checking your credit report, carefully check that paid-up judgements are not reflecting on your record.
Unfortunately, banking institutions can still access payment histories, so you mustn’t allow money owed to a credit provider or anyone, for that matter, reach a point where a judgement is issued against you. Settle the debt before it gets to a judgement stage.
Controlling your debt and credit levels
While it feels satisfying having a high credit card facility or even a high credit facility on a clothing account, unless your income justifies having high debt facilities, banks and other credit providers will include the high credit facilities in their affordability calculation given you will be able to at any point in time use the facility which can affect your ability to pay back a home loan.
Therefore, it is recommended that before you consider approaching your bank for a home loan, you reduce the credit facilities as much as possible to avoid the facilities prejudicing your chances of a home loan being granted.
Tips summary on improving your credit score:
- Always make payments on time
- Don’t pay less than the minimum amount due
- Reduce your debts with high interest rates first
- Negotiate payment terms with your credit provider if you are unable to make minimum payments
- Always settle a debt before it reaches the judgement stage
- Reduce your credit card and clothing account credit facilities to a level you can afford
- Close accounts you no longer use
Should you need assistance with managing your debt, you should consult with a reputable debt counsellor.