5 Best Ways to Improve your Credit Score
According to TransUnion a credit score of 681 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in them paying less money in interest over the life of the loan or debts.
Scores greater than 767 are considered excellent.
While every creditor defines its own ranges for credit scores, the following score bands are defined for the score:
- Excellent: 767 – 999
- Good: 681 – 766
- Favourable: 614 – 680
- Average: 583 – 613
- Below average: 527 – 582
- Unfavourable: 487 – 526
- Poor: 0 - 486
A poor, unfavorable, or below-average score indicates that you have some work to do to improve your credit risk rating.
In this article, we offer advice on the best way(s) to improve your credit score so it is not a hassle for you to be approved when you decide to apply for a home, car loan, or any other financial aid you require.
By improving your credit score, you will also improve your financial management, your debt situation, and your overall finances.
1. Timely Account Payments
Being consistent with your monthly account payments can help with improving your credit score.
Paying the full required amount due or not paying at all will determine your credit score level. If you miss a payment or pay late, this will be marked on your credit report and it’s likely to have a negative effect on your credit score.
To keep track of your payment records and to make sure that your score is still positive, you can check by accessing your credit report from institutions such as ClearScore and African Bank at no charge.
2. Maintain A Good Credit Usage
You can improve your credit score by not utilising all of your available credit. For instance, if you have a credit card or a store account with a limit of a R1000, try to maintain the amount owing balance at under R350.
Ideally, you should try to keep your credit repayments between 20% and 30% of your income. This will also help you to not default in your payments as the amount owed won’t be that much for you not to be able to pay in time.
3. Avoid Applying For Several Credits At The Same Time
Making an occasional application for credit won’t make much of a difference to your credit score.
However, if you make several applications in a short space of time, or if you’re rejected for credit, it’s likely to have a negative impact on your score.
If you want to limit the number of enquiries on your report, you can check your eligibility for a credit product by carefully reading the criteria before you apply.
4. Length Of Credit History
How long your account(s) have been active also plays a huge role in your credit record.
Most creditors like to see that at least one of your credit accounts has been held for several years. It’s likely to have a positive impact on your credit score if you have an older credit account on there. If your credit accounts are all mostly new this could lower your credit score.
It is also good for your credit score to maintain a healthy mix of credit, this can be store accounts, credit card, home loan, service contracts such as cell phone account and so on. This will help establish a strong credit history for you.
5. Avoid Closing Accounts/Credit Cards
It is advisable that you do not close a credit card account. If you feel like you do not need the credit any more, it is best to stop using it instead of closing the account. Depending on the age and credit limit of a card, it can hurt your credit score if you close the account.
Your credit score is one number that can cost or save you a lot of money in your lifetime. An excellent score can land you lower interest rates, meaning you will pay less for any line of credit you take out.
But it's up to you to make sure your credit remains strong so you can have access to more opportunities to be approved for any credit you may require as you will be labeled a low-risk client.
Bonus Tips And Key Highlights:
- Try not to apply for too much credit in a short space of time.
- Older credit accounts will help your score and look better in the eyes of a lender.
- Always try to make a payment even if it’s late – being in default will have a bigger impact on your score than just missing a payment.
- If something does not seem right on your report, contact the credit bureau to dispute any inaccuracies. This will potentially safeguard you from identity theft, as well as guide you to paint yourself in the best possible light in the eyes of the credit provider.