Tips on Creating and Growing your Credit Score
How your credit is managed can either positively or negatively affect your personal and business life. Most business loan lenders do a credit check on your personal profile too, before deciding on whether to lend you or not. A bad credit record can even prevent you from securing a career role, which in turn affects your income and cashflow.
The following are a list of tips in helping you manage your credit in your favour.
Payment date – Always pay before the due date expected, not the day after. The reason for this is because payments don’t always reflect the same time on the credit provider’s system. Even if they do, their accounts department may not update these immediately. So, when the due date is on the 7th, pay days before time if you can. By the time the credit bureau system is updated, you have already paid.
After date – Paying after the due date can be recorded as a missed payment on your payment profile, this will have a negative impact on you. Your credit report may consider you to be a slow payer.
Amount – Always pay a slightly higher amount than the minimum instalment expected. This has a good chance of helping with boosting you credit score. Depending on various factors, we will discuss these factors in another issue. If your minimum instalment amount is R550, then aim for the highest you can afford. Try aiming for R600 or R580 instead of the minimum R550.
EFT pay – Note that paying large retail brands using an EFT payment can delay the updating of your records on the credit bureaus system. This is because it might even reflect 11 days after the EFT payment.
Enquiries – Don’t ever make too many enquiries around the same time or days, you may lose credit points each time you enquire. Your score drops. You also appear desperate, this scares lenders.
Risky – When the system picks up too many credit enquiries, you may be flagged as HIGH risk. That alone can give the impression that you will not be able to pay back.
NO Score – Not having any credit account like retail, a loan or credit card can prevent you from obtaining credit because some lenders want to see how you manage payments first before lending you anything. People who have never had any credit in their lives, usually have Zero credit score. Some fear credit viewing it as only bad. Having no credit score means you cannot buy a house or car on credit, unless it rent to own or other options. To have the score you have to open some accounts like clothing retail accounts and some furniture store. You can use only a little part of that credit just to pay back in months. So when given R3000 as total credit, you can decide to only use a small portion of the total credit in order to be able pay it back from month to month via instalment.
Cash purchase – Buying any item for cash gives you peace in your sleep, know you don’t owe, right? On the other hand, you don’t earn any credit points cash purchases. Your score remains on Zero and even in a case of emergency, lenders may not trust your credit management ability.
Full settlement – When you decide to fully pay up your account, always ask for a full settlement letter before paying. That letter must have a due date and the full amount to be paid with more details like the account number and your ID number on it. Paying up your account might help with boosting your credit score. This should also be recorded on the credit report as “paid up” showing Zero balance. This letter can stand in your favour if/when any possible issues or disputes arise. In case the credit provider mistakenly lists you negatively after you made the payment, the paid-up letter will serve as evidence for all concerned parties to peruse.
Negotiate – Always ask the credit provider or their legal representative how much discount can they give you when you fully settle. This can save you thousands of Rands which you can use for something else.
Consumer Ombud – When you know that you have fully settled the agreed amount on time and the credit provider still continues to harass you or ignores your request for a settlement letter. Search for consumer Ombud on Google search, contact them to lodge a complaint. When you have all the supporting evidence, the retailer / creditor can be forced to issue the promised letter. Having the issued letter serves you well in boosting your credit score points because it may suggest that the credit has updated your payment on the credit bureau system.
Credit card – A credit card facility in your name puts you in a favorable position to boost your credit score, it has a revolving credit facility. It’s more flexible than a personal loan.
Credit balance – Don’t use all your available balance in the credit card, leave atleast 30% of the total credit limit offered.
Cheque account – How you handle your cheques account in the bank may also affect your credit score with the bank. They might decline you loan when records show that you have or had insufficient funds in your account. That can make them wonder if you will be able to repay.
Failed debit orders – When a debit order deduction fails to collect, this creates a negative impact between you and the bank. Another thing to consider is, this records as non-payment on the credit bureau, other lenders wont bother giving you credit when they see non-payments or a lower credit score due to failed debit and non-payments.
In community – A couple married under this legal agreement can affect each other credit and credit score. If one is a good payer and the other is not, they may both be affected when applying for credit. They are like partners. So, the one who is a good payer may help boost the credit score if the account is managed well.
Scores differ – Keep in mind your credit score point will vary from one credit bureau to another. You may have 800 credit points with Transunion and then have 650 with Compuscan, as an example. That is why on creditor may decline you for a low score, but the next provider may approve you because on their system, you score may look good.
Comparing scores – To fully settle your account, it may be best to get credit reports from all four major bureaus, sometimes the listing may vary from one bureau to another. This will allow you to compare and lodge a dispute with tangible facts. Once updated, your score might go up, depending on other various factors.
Free report – You may obtain your free credit report from one of the major credit bureaus, you may search for Transunion, Experian, Compuscan and XDS to request for your free annual credit report.
More tips will be discussed in the next issue of My Hustle Magazine. The tips given does not guarantee any results, the outcome may differ from credit profile to another, depending on various factors.