Do you have bad credit? Looking for a job, but your bad credit getting in the way? Certain agencies may require a respectable credit score upon approval. Looking for ways to improve your credit record? Our guide covers everything from bad financial habits to home loans with 15 tips on improving your credit record.
Why is having good credit important for South Africans?
The first reason for a good credit score will have to be that it is essential to getting your home loan or loan application approved. Additionally, those with a good credit score will find themselves in a position where they can bargain with the bank more efficiently. This is especially true regarding a lower interest rate on their loan, which results in more money saved in the long run.
Our 14 tips on how to improve your Credit Record
Bad financial habits are the root of bad credit.
The first step to establishing and managing bad financial habits is regularly reviewing your credit. There are several ways to check your credit, such as through bank statements and your free yearly credit report. In addition, when you apply for multiple lines of credit or additional loans, especially in a short time frame. This will result in potential damage to your credit score.
Budget & manage your finances with care
When taking on any form of credit, you must draught a budget to ensure you can make your repayments on time. Following your budget will ensure you don’t have insufficient funds when you make your monthly repayments. It is essential to note failure to budget effectively may result in missed or late payments, which consequentially leads to penalties and late fees. In addition to this, it lowers your credit score as this lack of payments reflects on your credit history, which is the primary factor regarding your credit score credit scores.
Stay within a certain credit utilisation threshold.
Those who budget effectively reduce their reliance on debt, which will minimise credit utilisation. It would be best if you always strived not to exceed your credit limit, as the closer you are to it, the more this will affect your credit score. Those who use credit cards should have a standard rule of thumb where they do not exceed 30% of their credit limit. So those who budget effectively will reduce their dependency on credit. This can be done by using a budget to ensure your bills and accounts are paid more effectively to prevent further credit utilisation.
Reduce your debts
You should always factor in all your debt when creating a budget. Once this is done, you need to reduce the number of accounts you owe by paying off specific bills. Those with higher or additional debts need to understand this may affect their credit utilisation. In addition, it may make it more difficult to pay all your monthly instalments each month. With a budget, you can allocate funds more efficiently to your debts, resulting in getting out of debt sooner.
Those who fail to make their repayments timely may be subjected to penalty fees or hurt their credit rating. Regarding the monthly amounts, you should consider paying more than the minimum monthly instalments. You will be debt-free sooner when spending more than the required minimum on your monthly instalments. When you pay off your debts sooner, you reduce the interest paid on the loan. This saves you money in the long run and indicates to lenders that you are financially responsible, as this improves your credit utilisation and will raise your score.
Do not max out your credit cards or take out too many loans.
Maxing out your card damages your credit and may damage your credibility. Maxing out your credit card will lower your score because it raises your credit utilisation ratio. Your credit utilisation rate is the amount you owe on your card to that of your credit limit. Consequentially the total credit card balance should not exceed more than 30% of your available credit; your credit score rating will very likely be lowered. This may make additional lines of credit more difficult to attain in the future, and you will probably be subject to higher interest rates on any potential loans.
Do not cancel multiple accounts at once to improve your credit record.
Closing a credit card or multiple accounts at once can lower your credit score. This is due to credit utilisation which measures how much of your total credit is available, and the closure of a credit card causes your overall credit utilisation ratio to spike as this lowers the amount of general credit you have. If you are unfamiliar with calculating your debt-to-credit utilisation ratio, you can add up all your available credit and all the debt you owe. You will then divide the total debt by the total available credit. Creditor providers and lenders find a lower ratio more favourable. In addition, the closure of a credit card removes the account’s payment history.
Access a copy of your Credit Report for Free.
Your credit report, in summary, will indicate any positive and negative factors on your credit score. The benefit of this is you can understand your credit more effectively. Remember that lenders use this record to associate your risk regarding your ability to honour your credit commitments and repayments. Those with a respectable credit score will be subject to better offers for future financial opportunities. However, a poor credit score will result in fewer or limited credit options.
Home loans for blacklisted
If you have been blacklisted, it is still possible to acquire a home loan. However, you will first need to absolve yourself of any outstanding debts. Also, if you are blacklisted as the result of fraudulent activity, the first step forward will be to reach out to a professional for help, such as an attorney. For those who do not proceed to take steps to repay/settle their debts, their odds of acquiring a home loan are significantly low.
The Rent-to-Purchase Strategy
If you are unfamiliar with this term, the “rent-to-buy strategy” is a leasing agreement where the rental of a property after a certain term length, alongside additional payments, has the chance to buy the property. The benefit to this is that this strategy allows potential buyers the opportunity to own the property they once rented for those who have yet to save for a deposit and build credit when one cannot secure traditional financing for a home loan without substantial upfront costs or interest rates due to insufficient or low credit. This will be through a leasing contract that highlights and stipulates such terms and the allocated time frames for the rental and purchase of the property.
A lack of credit history or none at all
To improve your credit score, the best method to do so is with your repayment history. Those who repay their monthly loan instalments consistently and timely. Those who pay more than the required minimum repayments will find that lenders deem them less of a financial risk. Consequentially this will additionally raise your credit score. Lenders will also offer more favourable loan options and interest rates to those who manage their money responsibly. However, missed or late payments may lower your credit score and will remain on your credit history for up to 7 years. Hence the importance of repaying your loans timely. Consistently missing repayments will further lower your credit score and, in addition, make it more challenging to raise your credit score in the future.
Ensure you pay loans, accounts, and bills on time to improve your credit record.
If you have recently missed one of your repayments, you can redeem yourself to not damage your credit score and history. Commonly these repayments are only reported to credit bureaus after 30 days after the initial due date. To some degree, you have approximately a month to repay the instalment to avoid affecting your credit rating. In addition to this, try to get any current overdue accounts paid. This will help reduce damaging your credit score.
Automate your loan repayments.
Stay ahead of your repayments. This can be automated for these accounts to make these repayments simple. Remember that you should have sufficient funds in your account when making these repayments to credit providers, as they may charge penalty fees for return payments. Regarding credit cards paying in full is ideal as this keeps the charge of interest low and raises your credit score.
Try mixing it up with new forms of credit to improve your credit record.
When building a credit profile, develop a more diverse profile of accounts, as this indicates to lenders your ability to manage different types of credit. Effectively managing varying types of credit will yield positive results for your credit score. When lenders gauge your credit score for any potential risk, they will also consider various types of credit as your credit score consists of these different kinds of credit. This doesn’t mean opening multiple accounts for lines of credit you may not need, as credit providers will factor in the length of your credit history, amounts owed, and the number of new accounts.
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Loan amount R100 - R250,000. Repayment terms can range from 3 - 72 months. Minimum APR is 5% and maximum APR is 60%.