Your credit health report and credit score are like a photograph that shows you what your money situation looks like. When you understand your picture, you can take action to keep your score healthy.
Before you read any further, we recommend that you watch this video on the Bayport website that explains how to read and interpret your credit health report. Once you’ve done that, the article will make much more sense.
Here are 10 steps you can take to improve your credit score and keep it healthy.
- Check your report regularly to make sure that all the information on it is correct, starting with your personal details, and contact the credit bureau immediately if anything is wrong. An important area to check is the enquiries notes on your report. Are you aware of these enquiries? If not, let the credit bureau know that someone might be trying to get credit using your identity. Also check the summary of your accounts and payment history to make sure the accounts listed there are yours and that you agree with the payment history. By simply getting the credit bureau to correct any mistakes, you can improve your record and your score.
- Check all the accounts on your credit report. Make a note of the ones you have not been paying according to your agreement, eg, missing payments or paying late. Put a reminder on your phone to make sure you pay the full amount, on time, every month.
- Never use more than 35% of the credit limit on an account or a credit card. For example, if your credit card limit is R5 000, never owe more than R1 750 per month. Similarly, when you take out a loan, do your best to not take the maximum amount for which you qualify.
- If your credit utilisation (the 35% we spoke about in point 3) is getting too high, work with your budget and expense tracking to increase your monthly repayments so that you can bring the number down. This is good for your credit score and will save you money on interest when you pay off the loan quicker.
- Only borrow more to pay off debt if it is to consolidate your current loans. In all other circumstances it is a very bad idea to borrow from one lender to pay off another.
- Negotiate payment arrangements with your creditors if you struggle to keep up with your repayments, and stay away from monthly cash loans.
- Maintain a healthy mix of credit, such as retail accounts, credit cards, a home loan and service contracts such as for a cell phone. This helps to establish a strong credit history.
- If you are in danger of missing a payment, contact your credit provider to make an arrangement. Not only will this prevent a default from showing up on your credit report; it will also ensure that you maintain a good relationship with your credit provider.
- Do not shop around for multiple lines of credit at the same time. Every time you apply for a loan, the credit provider runs a check at the credit bureau. Too many applications at the same time could indicate that there has been a significant change in your financial situation.
- Once you have settled an overdue loan, wait 14 days and then request your credit report to make sure that the negative information has been removed. Why 14 days? Once the default has been paid, the credit provider has seven days to update its information and inform the credit bureaus of your paid-up status. The bureaus, in turn, have seven days from receiving the notification from the credit provider to amend your credit report.
Understanding and then taking action on your credit report is the best way to bring your debt under control. And that is a powerful first step on the road to lasting financial wellness.