Improving your credit score – On the Money with Jarryd Neves

Jarryd Neves
On the Money. Budding stock market investor Jarryd Neves, of BizNews, sends out an invitation to everyone who wants to ask questions about share investing – but is too embarrassed to ask. Write to [email protected] And tune in for his regular Monday column: On the Money

Credit score – we’ve all heard the term being used or thrown around. But what is it actually? Well, a quick summary of the term would be that your personal credit score is used by banks and financial institutions to weigh up various risks and benefits when it comes to loaning money. The higher your score, the better.

So, these credit providers use credit scores to see whether individuals qualify for loans – and how much interest they pay back. Higher scores often indicate a safer borrower, with a low score indicating a higher risk individual.

If you’re unaware of how your score is determined, a number of factors are in play. Like everyone else, you have a credit report. In this is a record of your financials, payment history, outstanding debts and also records of how well you pay off debt (timeously, without fail). Based on this, financial institutions can see whether you’re a good candidate for more credit/loans.

If you’re in the small percentage of South Africans that don’t have credit (or loans of any sort), you won’t have a credit score. While this may seem like a good thing, it won’t stand you in good stead when you want to apply for a vehicle or home loan. Start off small, taking on smaller loans that you can qualify for and easily pay off. This will help you establish a very good credit score from the get go.  If you’re uneasy about this decision, speak to a financial advisor (or someone you trust) about the best decision to take. Often, many start with a credit card (with a low credit limit) or a small personal loan.

But if you already have credit and would like to improve your credit score, there are a number of ways to do this. Making your repayments on time (and importantly, in full) is the first step. To avoid late payments – even mistakenly – set up debit orders in order to create and maintain a flawless payment history.

Too much debt is also a sure-fire way of affecting your credit score. According to TransUnion, it’s best to keep your credit facilities to “less than 35% of your limit.” As an example, if you have a credit card with a limit of R10,000, maintain the amount owing balance at under R3,500.

An interesting tip that TransUnion also brings up is that one needs to be careful when shopping for credit and/or loans. “Too many simultaneous applications could indicate that there has been a significant change in your financial circumstances.”

While it’s important to maintain a good credit score, it’s also important to check on it often. This way, you can monitor any suspicious activity and contact the relevant authorities should you see any irregular activity.

Have a question about share investing or personal finance? Write to me at [email protected].

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