Your credit score can play an important role when you apply for credit such as a personal loan, vehicle finance, a credit card, or a home loan.
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In South Africa, banks and other financial companies consider your credit profile alongside factors such as your income, expenses and affordability when deciding whether to approve credit and on what terms. Standard Bank explains that the good news is your credit score is not fixed.
Responsible financial habits over time can help strengthen your credit profile.
Pay your accounts on time
One of the most important ways to protect your credit score is to pay by the due date. Missed and late payments can negatively affect your credit profile.
Set up debit orders or payment reminders where possible and make sure there is enough money available in your account before payments are processed.
If you expect difficulty making a repayment, contact your credit provider as soon as possible rather than simply missing the payment.
Keep your credit balances under control
Using a large portion of your available credit can affect your credit score. TransUnion South Africa recommends keeping credit-card balances below 35% of the available limit, while its educational material also encourages consumers to aim for credit utilisation below 30%.
Avoid applying for too much credit at once
Applying for multiple credit accounts in a short period can lead to several inquiries on your credit report. Having many recent applications may be seen as a sign that you are trying to obtain additional credit.
Before applying, it’s important to consider whether the credit is truly necessary and whether you can comfortably manage the repayments.
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Pay more than the minimum when possible
Although paying the minimum required amount keeps an account up to date, paying more than the minimum can help reduce outstanding debt faster. Reducing your balances can also lower your credit utilisation and demonstrate responsible debt management over time.
Always deal with outstanding debt
If you have missed payments, defaults, or other negative information on your credit profile, don’t ignore the problem. You need to contact your creditors and discuss possible repayment arrangements.
When consumers are struggling with unaffordable debt, registered debt counselling may also be an option to investigate. Rebuilding a damaged credit profile generally takes time and consistent repayment behaviour.
For South Africans, the main thing to do to improve your credit score is to understand the basics: pay accounts on time, keep balances manageable, limit unnecessary credit applications, check credit records and deal with debt proactively.
However, building a stronger credit profile takes consistency and small improvements in your financial habits.
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Featured image: Pexels/Pavel Danilyuk
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