7 Tips to build or repair your credit score

Your credit score plays an important role in unlocking better financial opportunities. This score is a snapshot of how your credit habits compare to others and how well you manage your finances. A strong credit record is key to accessing home loans, credit cards, personal loans, vehicle financing, rental agreements, and better insurance premiums. Depending on your role and industry, and with your consent, even employers may check your credit score.

The fact is, a poor credit record can limit your eligibility for financial products, result in higher interest rates, and make it harder to secure financial support when you need it.

Your credit score is calculated using a formula that considers several factors, such as whether you are managing your bills and credit repayments responsibly. It also considers the overall exposure you have to unsecured debt and secured debt (backed by something you own, like a car or house) to evaluate your risk. In short, it shows, in a single number, how wisely you manage your financial responsibilities and credit. Banks and credit bureaus may use different scorecards, but, generally, the higher your score, the better.

Whether you’re starting from scratch or recovering from financial difficulties, here are some ways to build or repair your credit record:

1. CHECK YOUR AVAILABLE CREDIT REPORT

Register with one of South Africa’s major credit bureaus such as Experian or TransUnion to get your credit report and score. You are entitled to one free credit report in a year, which you can review for accuracy and to dispute possible errors. Some banks, like Discovery Bank, also offer access to basic reports.

The Discovery Bank Unsecured Debt Report, available in the app, provides a consolidated view of unsecured debt products, including monthly repayments and outstanding balances, using data from Experian. While reports like these cannot be used to apply for new credit or to assess overall creditworthiness, it can help you understand and manage your debt more effectively.

2. PAY YOUR BILLS ON TIME

Consistently paying your accounts is one of the most significant factors that affect your credit score. Set up reminders or schedule the payments on your banking app. Here’s an example to show how your credit repayments can build your credit score. Suzie gets a loan of R10,000 from her bank. The two-year payment term requires a payment of R500 each month. Suzie pays a higher amount of R600 every month by debit order, she saves on interest, pays the loan off sooner, and shows regular and consistent payment behaviour – contributing to improving her credit score.

3. REDUCE OUTSTANDING DEBTS

Pay off debts focusing on high-interest accounts first. This not only improves your credit utilisation ratio (calculated by dividing the total amount of your credit balances by the total of all your borrowing limits) but also demonstrates financial responsibility.

4. USE CREDIT WISELY

Credit providers advise keeping a lower credit utilisation ratio on your credit card-type products to show that you are not heavily reliant on credit. It’s also good to close credit cards or accounts you aren’t using. An account you close stays on your credit profile for at least 36 months. Having many open accounts may inhibit your ability to get other credit or loans when you may need it.

That’s because it can look like you have potential credit commitments, which decrease your available disposable income. Use your credit responsibly and avoid maxing out your credit facilities.

5. LIMIT CREDIT APPLICATIONS

Caution against submitting multiple credit applications in a short period. It can signal financial distress to potential lenders and negatively affect your credit score. Explore the credit offerings within your own bank instead of casting your net wide. Banks usually offer various products to suit your needs. For example, Discovery Bank has a single credit facility that you can shape however you want without applying for various credit products. Be selective and only apply for products that match your financial capacity.

6. CONSIDER USING A PRODUCT WITH A LOW CREDIT LIMIT

One of the most effective ways to repair your credit score or to build it when you are just starting out, is by using a credit card with a low limit. Certain banks, like Discovery Bank, provide products with a low credit limit that, if approved, can help you show a pattern of regular payments, which can improve your credit score over time.  

7. GET PROFESSIONAL ADVICE AND GROW KNOWLEDGE

For personalised, expert guidance on rebuilding your credit, you can consult with a financial adviser. They can help with a realistic budget, and a comprehensive plan to pay debts.

Also, find courses and tools that can help you improve your financial knowledge and skills to avoid excessive debt. Discovery Bank places high importance of financial education and has a partnership with Worth for access to expertly designed financial education courses at highly reduced rates.

Here’s what a couple experienced: “We absolutely loved the course. It was a great time for us to connect and discuss our financial future, and we have since made major changes. I have a firm hold on my finances and regularly meet with my financial adviser and am an active participant in making my money grow. I’ve also taken an interest in our spending habits and monitor them weekly. My partner now has investment and savings options and can put away a portion of his earnings each month instead of wasting it.”