It can be quite troubling to think that details of many of the financial transactions you enter into are taken down and potentially used against you. While that might sound Orwellian in nature, a credit score is actually a very useful metric as it gives financial service providers a snapshot of the risk you represent.
If you have a good credit score, you can access a range of financial products such as loans, credit cards, overdrafts and mortgages at an affordable rate. If you have a bad credit score, you’ll pay over the odds for just about every source of credit you can access. Wonga explains the damage a low credit score can do in this a recent post:
While a poor credit score can be damaging, the good news is that there are some relatively simple steps you can take to give yours a boost.
- Register to vote
Probably the simplest step you can take to improve your credit score is to register to vote. In South Africa, you can find out more about how to register to vote here. Being on the electoral roll shows the credit reference agencies and the lenders that you are who you say you are, and there’s nothing they like more than certainty.
- Always make credit repayments on time
Easier said than done you might think, but if you’re struggling, it’s worth sacrificing a night out or a weekend away to keep up with your credit repayments. While a night out may bring you short-term pleasure, the consequences of missing a repayment on any form of credit, such as a loan or even a mobile phone contract, will be felt for a long time to come. You can just make the minimum payment if that’s all you can afford to avoid a default being registered against you.
- Use a credit card to rebuild your credit history
If you have a bad credit score then you might think staying away from credit altogether is the best way to fix it, but that’s actually not the case. Believe it or not, you need to use more credit to show you the agencies that you can use it responsibly.
A good way to do this is to start making a few purchases on a credit card. If you have a poor credit score, then the likelihood is that the only credit cards you’ll be able to access will charge a high rate of interest. However, as long as you repay the credit card in full every month and never use it to withdraw cash, you will not pay a penny in interest.
- Cancel unused credit and store cards
You only need one credit card to rebuild your credit score. Having dozens of credit and store card accounts open is never a good idea. Even if you don’t use them, having such a high level of available credit can have a negative impact on your credit score. Instead, close all of the accounts you no longer need and only keep those long-standing accounts with good credit histories, as they can benefit your credit score.
Have you taken steps to improve your credit score? What did you do and was it effective? Please share your experiences with our readers in the comments below.