Rebuilding Your Credit History

By now you should have realized that there is nothing more important than having a good credit score. Your credit score is the first thing that all lenders and creditors will look at before granting you any form of a loan, whether you are looking at applying for a home loan, personal loan, and clothing shop account.

We as South African citizens should know the importance of having a healthy looking credit score in order to maintain a normal lifestyle.

The sole purpose of your credit score is for creditors to see what level of risk you are before they lend you any kind of finance. It is important that you work on your credit score before applying for any form of credit or loans. Banks and other financial institutes are very cautious when it comes to lending, and it understandable due to the high debt levels of South African consumers.

Here are a few steps which could help you repair your current credit status:

1. Make your payments on time:

Your payment history can take up to 35% of your credit score, therefore you will have to make sure that your make your monthly debt payments on time and in full.

2. Pay attention to your credit cards first:

Paying attention shows a lot if you make regular payments on your credit card first. Keep the balances as low as possible as credit cards are also most likely to have the highest interest rates.

3. Avoid going to court:

Make sure that you never get charged with a court order. This will make a lot of damage on your credit score, which will show on your credit score and take a few tears to delete or remove.

4. Don’t take on too much debt:

South African household should not have more than one two credit cards and more than two major debts like a home loan and car finance. Never max out your credit cards and always try to keep them below half the credit limit. Never take out more debt while still paying off other debts and finally a rule that everyone needs to remember is that you should try not use more than a third of your gross income towards debts.

5. Keep your credit limits high and your due amounts low:

Never ask credit providers to lower your credit limit, rather just minimize the gap between your due amount and your credit limit (this is if you know you have the discipline). It will always be cheaper for you to pay of the debts with the highest interest rates of first, but our suggestion is that you rather spend your money on the debts which is closer to their limits.

6. Close unused credit accounts:

The less credit lines you have against your name, the lower the risk you are towards lenders. You should close all credit account that you are not using and tell the creditors to inform the credit bureaus that you have closed the accounts and not them.

7. Keep Credit Enquiries to a Minimum:

Don’t keep seeking credit as every time somebody does a credit check on you, it will have a negative impact on your score. So avoid applying for credit while you are in the process of improving your score.

8. Avoid using revolving credit accounts:

Revolving credit is a debt which you can pay back on your own time, however these accounts normally have a high interest rate and will cause a huge damage towards your credit score.

9. Not having a credit history could be bad you:

We all know by now that having too much credit is bad for you, however you should also know that having too little to no credit can also be harmful. You might find that you cannot obtain a loan or any other kind of credit due to you not having a credit score for credit providers to refer back to. I would suggest that you option for a credit card first. They are easier to obtain, but make sure that you will be able to afford the rates and fees. There are many online comparison sites that can help you to find a low rate interest credit card. Just make sure you pay it off in full before the interest rates starts kicking in.

10. Don’t wait for the creditors to contact you

If you see that there is trouble brewing ahead, make sure that you contact the creditors as soon as possible.

Try to get a copy of your credit report when you are trying to improve your credit history. You need to know where you stand exactly before climbing the credit ladder. Keep in mind that most of the time, there is more than 80% of credit reports contain errors, so go through them properly and diligently.