Getting credit is important for most people. Even if you don’t like using credit, you generally have to use it to buy a house or a car. Therefore, a good credit score is important for almost everyone.
Many people, unfortunately, manage credit badly, miss payments and don’t pay on time. This gives them a low credit score, which means that when they apply for credit, they are turned down.
What happens if my credit score is too low?
If you are turned down, how do you get your credit score back up again?
It is not going to happen overnight. It’s a process of doing the right thing and slowly your credit score will improve.
Before you start:
Know your credit score and draw a credit report. You get one free credit report per year. To draw another one will cost around R20 – R30.
At RD Debt Counselling we can draw a credit report for you.
Once you have your credit report, you need to look at two important things:
1. Is there a mistake on your report?
2. Could there be identity fraud on your account?
These things are real and happen to people every day.
There can be mistakes on your report; it could be as simple as a typo in your name.
For example, you may have ten accounts and only seven are correctly matched with the name on your report. This could benefit you or lower your credit score. This will cause problems sooner or later, so it is best to get it fixed as soon as possible.
Check for signs of financial fraud. If you have been a victim of identity theft, you could pick it up in your credit report. Look for accounts you don’t know or enquiries on your report you don’t recognise.
Be honest when you apply for credit
You will be asked about your expenses. It’s difficult to answer correctly if you don’t have a budget that you work on monthly. If you know your income and expenses, you will know how much you can afford monthly. Giving the bank lower expenses just to get the loan can cause a lot of problems in the future.
READ MORE: How to set up a budget
Always pay on time, don’t short pay, and don’t miss payments
What makes up the biggest part of your credit score? Your credit history. Consider how you paid in the past, whether you finish paying and if you have you miss payments. Don’t just think that if you pay the credit card and the loans that all is well. What about the rent, utility bill, phone bill, insurance and medical aid? All of these also have to be paid on time and in full to get a good credit score
Credit cards – don’t max them, don’t forget them
If you never use your credit card, it lowers your credit score. If you have a credit card and you use it too much and your balances are always at the max, even if you pay on time that also lowers your credit score.
Advice from the gurus is to keep your credit card balance at about 50% of the limit, use the credit card for small amounts and use it often, and always pay off the full balance on or before the due date.
Think and plan before opening new accounts
When you open too many accounts things can get out of control. Accounts are always tempting and a lot more effort to control.
Close accounts you don’t find useful
Accounts run fees every month, so if an account is costing you money monthly, and you aren’t really using it, just settle any outstanding amounts and request a written copy confirming that the account is paid up and closed.
Plan ahead when you need credit
First thing you have to do is to check your credit report so that there are no surprises.
Plan where you are going to apply. Remember that too many enquiries will lower your credit score.
Love them or hate them, credit reports and credit scores affect us all in some way.
Make friends with the concepts that make them work, check them regularly, and you can enjoy a hassle-free credit life.