Mastering your credit score

Managing and monitoring your credit scores in today’s financial landscape is extremely important. This includes your personal and business credit scores; credit scores can have a significant impact on your financial capabilities and opportunities. We need to know what exactly a credit score is and how we can improve that score. In South Africa, as it is with many other countries, your credit score serves as a numerical representation of your and your business’s creditworthiness. It reflects your or your business’s financial history and it showcases how reliable you are as a borrower. 

We need to be able to make the distinction between what constitutes a good or a bad credit score in South Africa. In SA we make use mainly of TransUnion or Experian as our reputable credit bureaus and these scores can differ, but we can generalise by using the credit scores that range between 0 to 999, higher scores indicate better creditworthiness while lower credit scores will indicate bad payment behaviour on accounts. While specific scoring models may vary, a score above 670 is deemed as a lower-risk score and good creditworthiness, whereas a score below 580 will raise concerns and is deemed as a high-risk score.

Below we can make a short list of 7 steps we can take to improve both your personal and business credit scores:

1. Know your credit score: Try and find out what your current credit score is from either Experian or TransUnion credit bureaus. Knowing where you currently stand in terms of your credit score is crucial to crafting an effective improvement strategy. 
2. Pay your accounts on time: Making sure that you always pay your bills on the agreed-upon date is one of the most significant factors that indicate your credit score. When paying late or missing payments your score will experience a penalty and will lower as a result. Always strive to make timely payments each month. 
3. Reduce your debt: When taking on high levels of debt and essentially overexposing yourself will lower your credit score. Try to lower your overall debt by developing a payment plan and try to avoid unnecessary expenses. 
4. Diversify your credit: Having different types of accounts can improve your score for instance if you have credit card accounts, home loans, or personal loans. But always keep point number 3 in mind by not overextending yourself. 
5. Monitor Your Credit Utilization: Keep Credit card balances low relative to your credit limit, do not utilize all your credit limit on your Credit cards as this will negatively impact your credit score. 
6. Check for any errors: Review your score regularly to make sure that you do not detect any inaccuracies and discrepancies. If you pick up that there are defaults listed on accounts, you have never opened you will need to dispute them promptly as this will be detrimental to your credit score. 
7.  Built Positive Credit History: Establishing a long track record of responsible lending and account conduct can improve your credit score over time. Even when you had previous financial challenges, when demonstrating improved financial habits can recover and improve your credit scores.
   

By using these 7 steps, you can take control of your personal and business credit scores. Always keep in mind that improving your credit scores is a gradual process that requires patience and discipline, but when looking at the long-term benefit it holds for you and your business it will be worth it in the end.