Maintaining a good credit rating isn’t as difficult as you think. If you know which aspects to focus on, you can build a good credit rating in just a few months.
What is a good credit score in South Africa? Take a look at the credit score breakdown the National Debt Advisors (NDA) made.
Fig. 1. Credit score breakdown (Source: NDA)
As shown above, you have to range within the ‘Good’ to ‘Excellent’ brackets to be considered for a loan. The higher your credit score is, the better since you’ll get lower interest rates as you become a more trustworthy debtor.
If you want to start building up a good credit rating, follow the steps listed below.
1. Live within your means
Avoid spending more than you can manage. Thinking that you have extra cash to spare just because you have a credit card is unwise. Don’t let your debt repayments eat more than 10% of your monthly income.
2. Know how your credit score is calculated
What is considered as a good or best credit score in South Africa? Knowing how your credit score calculations in SA are done is important if you want to get a better credit rating.
These are the factors that lenders take into consideration when assessing your creditworthiness: credit age, payment history, credit utilization, type of loans you’re managing, and your most recent card usage. Focus on improving these aspects if you want to build a good credit history.
3. Keep accounts with good credit rating open
The age of an account is also a factor in your credit score calculation. The longer you keep an account with a good credit history open, the better your rating is. Creditors see this as proof of your ability to take care of a credit account. They’ll trust you more because of your ability to maintain such a good account for a long time.
4. Prioritize debt repayments
Debt repayments should be on top of your priority list.
Treat all debts equally. Don’t miss out on paying one that has lower interest rates just because you want to focus clearing first the one with a higher rate. You’re not saving money this way. Instead, you’re hurting your credit rating more than you know.
5. Pay your bills on time
There’s no greater proof for a debtor to say that they’re responsible borrowers other than paying debts on time. If you can pay before the due date, that’s even better.
Bills payment accounts for a large chunk of your credit score calculation in South Africa. If you want to get a good credit rating, focus on paying loans on time.
Avoid missing out on due dates as this can negatively affect your credit standing. If you have a way to automatically pay bills on a set date, use this to your advantage.
6. Pay more than the required minimum
There’s nothing bad about paying only the minimum amount required every due date. However, this is not advisable if you want to get a better credit rating.
Paying your debts as early as possible shows that you’re a responsible debtor who knows how to handle their finances. Paying more each month also works to your benefit since you’re saving on interest which can pile up the longer you take to repay the balance.
7. Put bills under your name
Paying bills registered under your name can get you a better credit rating. This shows that you’re responsible enough to pay bills in a timely manner.
It’s even better if you use your credit card to pay your bills. The transactions may be considered in assessing your creditworthiness.
8. Maintain your financial stability
Do you know that your employment status and living conditions are also included in the calculation of your credit score in South Africa?
How long have you been with your employer? Have you moved to different houses for the past few months? How often do you buy appliances using your credit card? These are some of the factors that creditors may take into account to determine your risk profile and creditworthiness.
9. Hold a mixture of loan accounts
Managing a mixture of loan accounts adds to your credibility as a debtor. It shows that you can efficiently handle the pressure of paying all these accounts monthly without missing out on even one of them. Creditors will see that your financial management abilities can be trusted to a great extent.
10. Avoid abusing your credit limit
Limit the items you buy using your credit card. It’s not bad to use your card up to its max limit, especially for emergency situations. However, if you do this often, it won’t look good on creditors. They’ll see it as an act of someone who’s irresponsible and incapable of completely paying off the loaned amount on time.
Having a high credit card limit doesn’t entitle you to max it out every time you have the chance to, especially if you’re aiming to get a better credit rating. It’s ideal to spend within the ideal credit utilization ratio. This ratio recommends that you use only 30% to 50% of your credit limit every month.
The way you utilize your credit limit affects your credit score calculation in South Africa. So if you’re planning to get a good and one of the best credit scores in South Africa, take note of your credit utilization limit.
11. Check your credit rating
It’s a common misconception to think that checking your credit score negatively affects your rating. In fact, the government and other credit bureaus even encourage people to get their credit report at least once a year.
All citizens of South Africa are entitled to a credit score check for free. This can be availed once a year. Subsequent credit score checks will cost you a bit for the service.
12. Look out for errors
Errors in your credit report rarely happen but you still have to know what to do when you’re in this situation. Fraudulent activities and identity theft are some of the causes of errors and inaccuracy in your report.
A major error on your credit report can bring down your good credit rating. Make sure you immediately report to the credit bureau any discrepancy you may find on your credit report.
13. Limit applications for a new credit account
When you apply for a new credit account, you do a hard inquiry on your credit history. This can have a negative effect, especially if you do this too often. On the perspective of lenders, they’ll think something might have happened with your financial situation, explaining the sudden frequency of loan applications.
14. Avoid defaults
Any negative information listed under your name can affect the calculation of your credit score in South Africa.
Avoid defaulting on your debts. Debt administration, review, and sequestration are also some of the cases that will drag down your good credit rating. These actions have a huge impact on your credit score which is why you should quickly resolve them.
15. Keep in touch with your creditor
Always keep your contact information up-to-date. Your creditor will usually send you an email, a letter, or contact you by phone to notify you of any unsettled debts or policy changes.
If you gave them an incorrect contact information, you’ll miss updates and other reports that may be crucial to your good credit rating.