Improving your Credit
Your credit score is the determining factor that affects whether you can acquire a bond for your new home or not. Your financial “good name”, is written throughout your banking and credit history. This score is there to quantify the amount of “risk” a creditor is taking on by loaning you money. A good credit score will make your loan applications a lot easier and can also be used as a bargaining tool when negotiating for lower interest rates.
Below is some advice on how to achieve a solid credit record.
Pay on time
Paying on time is the most vital determinant of your credit score. Your payment history can contribute up to 35% of your overall score. If you are late on a payment, even by a single day, it gets recorded and your accumulated score is decreased. To ensure this never happens set-up debit orders or postdate payments you make online. Your latest transactions carry more weight than past ones, so it is fairly easy to erase former blots with consistency.
Pay credit cards off
The infamous credit card, provider of instant joy and a long-term pain if not managed correctly. How you control your credit card is a good indication on how you will manage any future credit. Regularly make payments on your credit cards and keep the balances down and you will be perceived as someone who manages their debt responsibly, giving you extra credit clout.
Don’t end up in court
If you end up in court due to a continued lack of non-payments, your credit record will be irreparable for up to five to eight years. Avoid this at all costs.
The enemy is debt ratio
Your debt ratio is the difference between what you owe combined with your credit limit, and can make up to 30% of your credit score. Creditors like that gap to be as wide as possible. Owing R14,500 on a limit of R15,000 is not a healthy indication. Aim to cut what you spend on debt each month to less than 30% of your after-tax income. Tackle debt with the highest interest ratio first, and kill all debt that is reaching the maximum limit.
Close idle lines of credit
Having fewer lines of credit available to make you less risky to creditors. Close all unused credit cards and accounts and have creditors notify the credit bureaus that accounts were closed by you, and not by them.
Keep credit enquires few and far between
Hunting for credit can trim up to 10% off your credit score. It’s best not to make any unnecessary enquires. All of your enquires/credit checks, including those that are denied are recorded, and if there are too many accumulated together, along with bad debt then it is a sure indicator of financial trouble or mismanagement of accounts.
Avoid credit repair agencies
There is really no need to go to credit repair agencies for credit repair as you can easily do it yourself (visit http://www.credithealth.co.za/). These companies charge R5,000 and upwards to repair your record and many of them are scams. It is best to avoid them completely and tackle your credit independently by directly negotiating the matter with your various creditors.
Credit History
While having too much debt is obviously bad for your credit record, having too little will count against you. The duration of your credit history can make up to 15% of your score. If you no credit history, the credit provider will have little faith in your long-term ability to pay back. However if you have a degree in higher education, with a decent income, you can still be considered for credit even though you might have had no previous history. A house loan will certainly be much more difficult to obtain than car loan for example.
Obtain a copy of your credit report and look for errors
It is vitally important that you obtain a copy of your credit record and always check to make sure it is correct. About 80% of the time the reports contain errors. The most being accounts that are not yours obtained through identity theft, a common and dangerous problem.
Story by Kyle Gray (First Published in REIM)
