Important hints to improve a credit score

Denver Bright

Our credit score is one of, if not the most, important aspects when applying for credit. This score is a fluctuating number and everything that you do with credit or debt affects it. This score helps your creditors judge how much risk there is when giving you credit. The better the score the better the chance of a successful application for credit.

Having a better score will also affect the interest rates and terms that your creditors offer. If you have a high score, this tells the creditor that you are a lower risk. This allows them to offer you reduced interest rates or even longer terms to repay the debt. The little things you do today can affect your chance of buying a house or car in the future.

Follow the tips below to clean up your score:

• Check your report. As South African consumers we have the right, entrenched by the National Credit Act, to a free credit report every year. Use this right and check your report. If anything appears incorrect, dispute it with the Bureau. They have 20 days to investigate the dispute and respond to you. We live in a time when identity theft and other crimes are widespread, don't wait too long before checking your report as someone could be destroying your credit score now.

• Pay on time. Pay your accounts on time, every month. Your payment history is retained for 24 months, so paying a day late this month will appear on your report for the next two years. Paying late is also one of the big pointers to your creditors that you may not be able to properly manage your debts. Rather set up a debit order to ensure that payment is made on time.

  Don't withhold payments if you have a dispute with your creditor. There are proper processes in place to assist you with disputes and not paying will reflect on your credit profile for the next two years.

• Limit your debt. Don't open an account, accept credit increases or make a loan for every little thing. Rather save for the things you need and pay cash where possible. Your creditors will look at how much debt you are exposed to when deciding to give you more credit. This means that they will look at your credit limits, not the amount that you have used.

  You should try to keep your retail and loan debt below 20% of your annual income. This way you will still have negotiating room when applying for bonds or vehicle finance. Trim the debt you aren't using. Don't hang on to credit cards or accounts that you are not using. Often we will say that we will keep an account for an emergency. If we have access to a credit card we will always justify using it, even when the emergency is not that urgent.

  These debts that you are hanging onto will affect your score as your exposure will be high. As in the point above, your 'emergency credit card' could be the reason that you cannot buy that car. Closing these extra accounts will immediately increase your credit score as it demonstrates your responsibility and reduces your exposure.

• Have a credit history. You will hear this one often, 'You need an account to open an account'. This is true, to an extent. If you don't have any payment history then your creditors have no idea if you will repay on time or not. If you do follow this route, make sure that you bear the above points in mind as well.
  Opening a clothing account to build a credit history only helps if you pay it properly and the limit does not prevent you obtaining other credit later on. Other items can also provide you with a payment history and are not debt, e.g. insurances, cell phone accounts, certain gym memberships, etc.

The following are some items that will decrease your score:

• Paying late or not at all. Not paying or allowing debit orders to bounce shows that you are not reliable with money management. This will prevent you from accessing credit.

• No credit history. Without a history your creditors will have no idea of your risk profile. You may be given credit but your interest rate will usually be higher to offset any risk the creditor might face.

• Allowing others to use your name. This is big 'no-no'. We are sometimes asked to help out a family member or friend by letting them use our accounts or by purchasing an item on our name for them. Don't do it. Most times these deals end in heartache and you are the one with the problem of a bad credit record or debt to repay for someone else.