How to improve your credit score

It is important for consumers to have a good credit score. You do not only need a good credit score if you want to borrow money: when you apply for a job, or to get your child into a school, it can also count.

As people now recover from the festive season spending and January’s back-to-school rush, it is time to focus on improving and repairing your credit score, says Lerato Thwane, head of e-commerce at Tesserai.

South Africans are struggling to make ends meet and most of them turn to credit to afford basic essentials. According to recent data from TransUnion, more South Africans took out new loans in the second quarter of 2023, while the amounts they owed increased by 8.1% compared to the previous year.

“In today’s fast-paced and ever-evolving economic landscape, managing your credit has become more important than ever,” Thwane says.

She says to understand why your credit score matters, you should know how it is calculated. “Your credit score is a reflection of your creditworthiness, determined by factors such as your payment history, credit use ratio, length of credit history and mix of credit accounts.”

It serves as a predictor of your future financial behaviour and is a decision-making tool for lenders, landlords and potential employers and also allows you to make informed decisions regarding your financial future.

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Increase in requests for credit reports

“Recent data indicates an increase in requests for credit reports, highlighting consumers’ growing awareness of the importance of monitoring their financial standing. By the end of the third quarter in September 2023, the number of credit reports issued reached 872 884, reflecting a steady increase from 840 025 in the previous quarter. The majority of these reports were issued free of charge, demonstrating a commitment to financial education and empowerment.”

If you want to improve your credit score, Thwane says using a credit score tool offers many benefits for a consumer. It calculates your latest credit scores, groups all open accounts and loans in one place and displays risk profiles and percentages of debt used and paid back.

To assist consumers to manage their debt and reduce financial stress and provide access to up-to-date and free credit information, Splendi, powered by XDS, was developed. It offers a credit summary dashboard, detailed segmented breakdowns, alerts and credit education. With a tool like this, consumers can gain valuable insights into their financial health and make informed financial decisions, Twane says.

“Improving your credit score is a gradual process that involves responsible financial habits and careful management of your credit.”

ALSO READ: How to start building a healthy credit history

How to improve your credit score

Thwane has these tips for consumers to improve their credit scores:

• Check your credit report: Review your report regularly for inaccuracies, such as incorrect personal information or accounts that do not belong to you and dispute any errors you find.
• Pay your bills on time: Timely payment of bills, including credit cards and loans, are crucial. Late payments on credit accounts can significantly affect your credit score.
• Reduce your credit card balances: Aim to keep your credit card balances low relative to your credit limit. High credit card balances can negatively affect your credit score. Ideally, keep your credit use ratio (credit card balances relative to credit limits) below 30%.
• Avoid opening too many new accounts: Opening multiple new credit accounts in a short period of time can negatively affect your credit score. Only apply for credit when necessary and beware of opening too many new accounts.
• Lengthen your credit history: The length of your credit history is a factor in your credit score. The longer your credit accounts have been open, the better it is for your score. Avoid closing old credit card accounts, as this can shorten your credit history.
• Diversify your credit mix: Having a mix of different types of credit, such as credit cards, instalment loans and retail accounts, can positively affect your credit score. However, only take on new credit when necessary and manage it responsibly.
• Be cautious with credit inquiries: Each time you apply for new credit, a hard inquiry is made on your credit report. Too many inquiries in a short time can lower your score. Be selective about applying for new credit and only do so when necessary.
• Work with your creditors: When faced with financial challenges, contact your creditors to discuss your situation. Some creditors may be willing to work with you on a modified payment plan to avoid an adverse credit score.

Thwane says consumers must remember that Improving your credit score takes time and there are no quick fixes. “Consistent, responsible financial habits are important to achieve and maintain a good credit score.”