How to improve your credit score quickly in South Africa

South Africa is a nation of borrowers, with personal debt at an all-time high and the national debt reaching highs. Statistics published by the South African Financial Services Board (FSB) in 2012 estimates that only 51% of South Africans are financially literate.

Everyone deserves to have a better understanding of how to manage their hard-earned money and to understand the basics… from understanding what Annual Percentage Rates (APRs) are to maintaining a good credit score.

Many people are not even aware of their credit score and the impact the rating. It’s only when loan application are rejected or exorbitant interest rates are charged, that users finally realise the importance of a good credit rating. So, what should you do, to improve your credit rating? Let us guide you on how to manage your credit score, and if your credit score has already taken a hit, how can you heal it.

What is a credit score?

A credit score is an indicator of how consistently and timely you have paid off your previous debt(s). A bad credit score indicates defaults, late payments, or too many applications for credit (short term loans, credit cards, vehicle finance, etc). This alerts the lender to potentially reject your application or to charge a higher interest rate because of the perceived risk.

Any adult that has applied for credit, be it a credit card, vehicle finance, mortgage, personal loan or any other type of debt, will have a credit score. If you put in an application for any of these products, your credit score is pulled up, and your request is evaluated based on the rating.

How do I know if my credit score is good or bad?

In the Rainbow Nation, the credit score typically ranges between 330 and 850, use this as an indicator of where you may stand:

• 800+ – Outstanding
• 740 – 799 – Perfect
• 670 – 739 – Very Good
• 580 – 669 – Average/ Good
• 579 & below – Poor

Importance of a credit score

Having a 580+ credit score will make your life easier when it comes to getting approved for credit cards or small loans. Additionally you may be charged a lower interest rate for having a good credit score. Conversely, having a score below 580 can throw a wrench into your essential life plans; from not getting approved for an education loan, to paying higher interest rates… A poor credit score can pose many issues. T

How to improve your credit score?

Keep in mind that if your score is low, it takes time to re-build the score to a level that is considered acceptable by lenders.

1. Be aware of your credit score

Do not run from the reality as it is never the solution. Knowledge is power; it will only help you take the first step in your quest for a good credit rating. According to the National Credit Act, South Africans are entitled to one free credit report per year. Credit bureaus such as Transunion or sites such as Credit Genie can help you get your credit score.

2. Make your repayments on time

Your repayment history has a significant impact on your credit score. More than a third of your credit rating is impacted by your ability to make repayments on time. So be sure not to miss your repayment deadlines.

3. Get some stability in your life

If possible, do not max out your credit card or overdrafts. It could be an indicator of poor spending habits, moreover, it will leave you with less credit available for emergencies and will increase the amount of interest you pay over time. 

4. Get some stability in your life

Unstable or irregular income, frequent changes in address, among other things, are considered warning signs by lenders. So try to hold down a job for a longer duration and move around less frequently.

5. Avoid courtroom drama

Being summoned to court can be seen as a potential risk for lenders, as this could impact your ability to work and bring about extra expenses. So if possible, avoid unnecessary courtroom drama.

6. Don’t borrow more than necessary

If your professional career is progressing well and you’re confident about the future, it’s recommended you have no more than a couple of credit cards, a mortgage and a car loan/car lease.

7. Get some stability in your life

Unstable or irregular income, frequent changes in address, among other things, are considered warning signs by lenders. So try to hold down a job for a longer duration and move around less frequently.

8. High limits, low amounts due

Being able to demonstrate that you have high limit credit cards and very little due at the of the month or that you repay most of your debts in full will help your credit score. However, keep in mind that if you plan to get a mortgage; high limit credits cards are seen as liability by the banks… even if you owe nothing on them. So consider reducing your limits when applying for a home loan.

9. Close credit cards and overdrafts

If you have unused lines of credit such as credit cards or overdrafts, close them. The lending notify credit agencies of the closures – and you’ll seen as a lesser risk for lenders in the future.

10. Don’t apply for credit regularly

Each time you apply for credit, your credit score takes a hit. Your credit rating could take a hit of 10% each time you apply.

11. Avoid regular credit transfers

If you find yourself rolling your credit over through credit card balance transfers regularly, consider tightening up your belt and getting a debt consolidation loan to pay off your debt once and for all.

12. Have a credit history

You may be a greater save, but that doesn’t show financial institutions how well you manage debt. So consider a low fee credit card that you rarely use and always payoff on time. A good long credit will help your credit score considerably.

13. Ask your partner about their credit score

If you get married and start making plans such as getting a mortgage together; your partner’s credit history can impact the success of your application. Ask them about their credit rating prior to making big financial decisions. If they don’t know, get them to check credit score through a ratings agency.

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