Most people in the civilised world today have a least one credit card or buy things on credit and pay back the money owed in instalments. It is big business, and in order to protect themselves from consumers who cannot manage their debts, vendors use credit scores to identify those who are high risk when it comes to paying back what they owe.
All too often people fail to control their debts and end up in situations whereby they cannot make repayments in a timely manner. This results in these consumers being given low credit scores, which drastically, adversely affect their buying power. You can read more details on what is considered a ‘low’ credit score here.
But just because you have mishandled things in the past and got yourself one of these low scores, it doesn’t necessarily mean that you are stuck with it for life. There are certain things that you can do to reverse your poor score and get a healthier credit rating, and here’s how.
First, you need to be aware that repairing a poor credit score takes time. It doesn’t happen overnight, and you ought to be wary of anyone offering you a quick fix solution. If anything, such quick fixes will often end up making your rating even worse. Instead, you must take positive steps over a period of time, starting with keeping up to date with any existing repayments.
Using payment reminders
Late payments are a major cause of bad credit ratings. To help their account holders to remember when payments are due, some banks and credit card operators are now offering reminders in the form of emails of texts.
You can also agree to direct debits being set up. These will take money directly from your bank account, but only the minimum amount. However, only paying the minimum means that you are paying mostly just interest. The capital is hardly reduced. Also, it costs way more in the long run and takes much, much longer to completely repay the debt.
Lessening how much you owe
Decreasing how much you owe may not be easy, but it is effective; especially if you also stop using your credit cards altogether. Make a start by getting hold of your credit report. You are entitled to a free credit check, and you can request one from several sources including Credit Bureau.co.za.
If you have several credit cards or loans, look at each one to establish what rates of interest they charge. You should then prioritise the accounts that charge higher rates by paying off as much as you can afford while maintaining the minimum repayment amounts on the accounts with lower rates.
This will cost you less in the long run.
Reducing the total amount you owe
Try to keep a balance between how much you could borrow and how much you actually do. If you can get your balance down to 35% of your limit on each card, this will help. So, if you have say a store card with an R1,000 limit, try to get the balance down to R350 and keep it there or below.
Get rid of any harmful information
When you get your credit report, look out for any personally damaging financial information such as any judgments or administrative orders made on you by the courts. If you have any, make a point of paying off the debts associated with them as fast as possible.
The sooner you settle these types of debt the sooner you can get the negative remarks taken off your report – but be warned. It can take several years to have this sort of information removed, but don’t despair. It will be worth it in the long run.
Don’t be tempted to move your debt around onto new cards. The credit bureaus keep a careful track on this type of thing. In addition, if you apply for too many new credit card accounts at the same time, this can also further damage your credit score.
What is a good credit rating?
According to briefly.co.za, FICO credit scores are generally pitched between 0 and 999. A good score is considered to be around 700 while an excellent rating is 800 and above.