Whether you’ve made poor financial decisions in the past or simply been the victim of the uncontrollable circumstances of the COVID-19 pandemic, starting the process of rebuilding your credit can be draining. Many people have successfully built their credit, and so can you.
Sumitra Nydoo recently spoke to Tsungai Masandeke, who gave Kaya 959 listeners tips on building their credit records.
Listen to the full conversation here:
Good Credit
Masandeke spoke about how important it is to have good credit for important purchases like your first home, or car. She added that one’s credit profile needs to be squeaky clean for the moment you need to apply for credit.
“There’s always good and bad debt, for you to understand good debt you know that for it to be good debt it must A, increase your net worth or your net asset value over time and B, help you increase your income-generating capacity if you tick both those boxes you know you have good debt.”
Tips on getting your credit report back on track
- Never miss your credit payments
- Mix and match your credit and make sure your payments are up to date
- Don’t use up your credit cards
- Continually check your credit profile to avoid identity theft or fraud
- Ask your credit card provider to give you a higher credit limit and not go above your current monthly spend
Lastly, if you’ve paid up your credit cards, don’t close them. Closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lead to a lower score. Keep the card open and use it occasionally so the issuer won’t close it.
Also Read: South Africa’s wealthy households are struggling to pay their debts(Opens in a new browser tab)
Understanding Credit Scores
The information in your credit report is used by most credit and service providers as an important contribution to the development of their credit risk score.
“Lenders want to know whether or not they can take a risk on you in terms of lending. You find that the method that they use helps them figure out if you are creditworthy. You always want to have your credit high, because the higher your credit score the more trustworthy you are.”
Generally, the higher your score, the better. A TransUnion consumer credit score, for example, can range from 0 to 999 or from poor to excellent.
The following score bands are defined for the score:
- EXCELLENT: 767 – 999
- GOOD: 681 – 766
- FAVOURABLE: 614 – 680
- AVERAGE: 583 – 613
- BELOW AVERAGE: 527 – 582
- UNFAVOURABLE: 487 – 526
- POOR: 0 – 486
So if you want to apply for credit to buy a home or car, for example, or to apply for an increase in your credit limit, your credit score can serve as a guide. A poor, unfavourable or below-average score indicates that you have some work to do to improve your credit risk rating.
