Most of us rely on credit at some point in our lives – when a company or person (called a provider) lends us an amount of money that they expect will be repaid over time with interest. We might use credit for different things – for example, you might want an loan to cover an unforeseen expense, a credit card to pay off large purchases over time, or finance for a new car.
When you apply for credit, your Credit Score – contained in your Credit Report – is a summary of your borrowing habits and how your relationship with credit has been up until now. Your credit score will be what new credit providers check when they’re considering lending you money, and a good credit score can show that you make regular repayments in time and aren’t in large amounts of debt.
Keeping a healthy credit score is important when applying for a new loan or another form of credit – and there are several things you can do to keep your credit score in tip-top condition, or improve on if you have a low credit score.
Manage your account payments
Managing different account payments can be tough – especially if you’re financing a car, paying school fees, have bought an appliance on higher purchase, or have one or more store cards. It can be easy to forget to make a payment to a credit provider, and if you do, your credit score can suffer as a result.
Making regular repayments on your debt obligations show credit providers that you are able and willing to repay your debt over time and will not default - which means you failed to make a repayment.
Setting up regular account payments will not only ease mounting interest if you don’t make regular repayments, but can also avoid a credit provider seeking to collect outstanding payments when a certain amount of money is due – which can be listed on your credit report.
Review your credit card debt
Generally, a good rule of thumb to follow is to rather pay cash for any item that you can afford rather than use your credit card – but there are plenty of things that can be either expensive or difficult to buy outright. Using credit means that you can pay off these unforeseen expenses over time, rather than in one go.
While a credit card can offer you as much as R4000 or more to use over time, overspending can not only make repayments that much more expensive, but can also negatively influence your credit score.
A good practice to follow is to avoid using more than 30% of your remaining credit balance – that is, if you had a credit allowance of R10 000, you should ideally limit yourself to borrowing R3000 for purchases.
Remember, these guidelines only apply to credit cards – when taking a personal or short-term loan, you’re free to use as much of the credit provided so long as you repay it on time with interest.
Establish a strong account activity
When you apply for a credit card, loan, or other form of credit, a credit provider will want to be able to check whether you will be able to repay your loan in time and with interest. To do this, they may check your credit report to see what other loans or forms of credit you apply for.
While many people use more than one form of credit, having many open loans or accounts on credit at once can create the impression that you are unable to make regular repayments, or are using one loan to cover the costs of another.
A good rule to follow is to avoid creating too many account applications or taking out too many loans at once. By successfully repaying loans and then closing your account when you no longer need it, you can show that you are committed to repaying your loans on time, and that you don’t rely on credit to get by.
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