If you are looking to either get a good credit score or improve your current credit score, you're reading the right blog post. Your credit score plays a crucial role in determining your financial health and can affect your ability to secure loans and get help secure your home loan. Understanding how to improve and maintain a good credit score is essential for your financial well-being.
A good credit score is important because it demonstrates your creditworthiness to lenders and financial institutions.
Your credit score is based on several factors that are taken into account by major credit bureaus.
What’s taken into account in determining your credit score?
- History of on time payments (payment history)
- Amounts owing on your accounts (more on credit utilisation later)
- Time of having credit accounts (the longer you have accounts, the better.)
- Credit mix (different types of credit)
- Applications for new credit
Read: The importance of checking your credit score regularly
What’s a good credit score?
A good credit score will depend on the credit bureau you are requesting information from as they will have different credit scoring models. Different lenders and banks usually request credit reports from different and multiple credit bureaus. According to Experian’s credit scoring system, a good credit score would be anything from the average score (611-628) to the minimum (660-750).
Read: What's a good credit score in South Africa?
What’s the fastest way to improve my credit score?
May not be fast, but these are ways you can work at improving your credit score:
- Watch your credit-utilisation ratio.
A credit utilisation ratio refers to how much credit you’re given and the percentage of that credit you actually use or the portion of your credit limits. Ensure you’re at least below 50%. Ideally, below 30%.
Pay your bills on time each month. - Pay your bills on time each month
Late or missed payments are tracked on your credit report and affect your credit score. One good way to ensure your bills are paid on time is to automate your debit orders so that you don’t have to remember to make those payments each month. - Reduce your current debt
Having too much debt can negatively affect your credit score. You should work on reducing your debt. You can do this by paying more than the minimum monthly instalment.
What behaviours damage my credit score?
- Late or missed payments.
- Too many loan applications and rejections (hard inquiries on your credit report).
- Having little/no credit history.
- Opening too many new accounts.
- Being too close to your credit limit or maxing out your credit limit.
What has the biggest impact in improving your credit score?
Making your payments on time plays a very crucial role in improving or maintaining a good credit score. It is not only a responsible financial habit, but it also shows lenders and financial institutions that you are reliable and trustworthy when it comes to managing your debts. By consistently making your payments on time, you demonstrate that you are capable of meeting your financial obligations and are less likely to default on loans or credit.
Punctual payments have a positive impact on your credit history and can help to increase your credit score over time. Each time you make a payment on time, it is recorded and reflected in your credit report, showing potential lenders that you are a low-risk borrower. This can make it easier for you to secure new credit, such as loans or credit cards, and may even result in more favorable interest rates and terms.
Can I remove bad reports from my credit record?
You can only remove a ‘bad report’ if it is untrue.
If you find untrue/ false information on your credit report, you can lodge a dispute with the relevant credit bureau.
Missed or late payments can stay on your credit report for up to 7 years.
If you have settled an outstanding amount, it should state that it has been paid on your credit report.
Struggling to make on time payments, but still want to improve your credit score?
Debt review at Meerkat, also known as debt counselling, can be your way to get a clean credit slate and credit record.
This will help you start afresh so that you can be in a better position to be:
- Approved for your home loan.
- Get the car of your dreams.
- Get the personal loan you want.
