Understanding credit scores and building credit history through effective debt management can make you crave more coffee than what is good for you. Most of us don’t build our credit score until something happens – we want to buy a new car or property, and our credit score is redder than the South African government’s statement of cash flows.
So, if you’re in a situation where you need to build your credit score, make your credit score better or if you have a bad credit score – then this article is for you.
Why Should You Care About Credit?
Did you know that in the US, you cannot rent a property without a good credit score? But, in South Africa, we don’t really have this issue (yet). Yet, we know that your credit score affects more than just getting a credit card to buy coffee with.
I know that many people like buying things in cash. These lucky people don’t need to worry about a credit score – until it’s time to make debt for something serious, like for an unfortunate hospital expense. Let’s look at how your credit score affects your life:
- If you have a good credit record, it makes it a lot easier to get a loan for a car or home.
- Because I’m very much interested in property, I know that a good credit score helps you get lower interest rates – and the impact of 0.25% can make a huge impact over 20 years.
- Insurance companies also check your credit score – and determine your premium based on what they find.
- Honest people don’t do business with dishonest people – and the banks agree. People with bad credit scores will find it challenging to get a business loan or venture capital (depending on what the VC requires).
.Here’s an article that explains more about what is a credit score.
Building Your Credit Score – The generic stuff
I have to include the normal credit score stuff because these are important. For example, if you are blacklisted because you didn’t pay back the money owed, then no tips or tricks in this world will make the blacklisting go away – unless you want to sit in jail for identity theft or do horrible things. So, how can you build your credit record in normal, everyday ways?
- Check out small accounts // store cards: Begin with a store account like TFG or Mr Price Money or a credit builder loan from Capfin.
- Pay On Time, Every Time: If you default or a debit order bounces, your credit score is impacted.
- Don’t max out your credit cards. I like to pay them off almost immediately. I went and bought shoes on credit, went to have a coffee, and then went to the store to pay them off completely. Keep your credit usage below 30% – basically, the bank wants to see if you are responsible with your money and don’t max out all your cards.
- Don’t go bat s*** on credit. Multiple credit requests within a short period can lower your score. Additionally, frequent credit score checks before applying for a loan might signal to lenders that you’re seeking more debt, potentially impacting approval chances.
Where can I start building my credit record?
Don’t feel discouraged on your journey. There are some entry points – and generally, store cards are the easy way in. This was the case for me, and a good friend who recently needed to up his credit score. I need to stress here that you need to treat debt with respect. It’s not a ticket to freedom. Please don’t go wild with your spending! Here are some other solutions for building your credit score:
- Credit cards: The top 5 easy credit cards to apply for include Discovery Bank gold credit card, African Bank black credit card, ABSA flexi core credit card, FNB aspire credit card, and Standard Bank gold credit card.
- Alternative credit providers: If you struggle to open a traditional credit account due to low income, you can consider alternatives such as mobicred and Pep accounts.
Non-traditional ways to build your credit score
Here are some ways you can up your credit score. I’ve used some of these early on in my life – and it’s been gold!
- Leverage Existing Bank Relationships: Speak to the bank where you already have an account – they know your banking history better than anyone else.
- Borrow money jointly with someone else – Please be careful! We bought a property together as a family – and I was able to get a loan based on my sister and dad’s credit rating. we repaid the home loan monthly and reaped the credit score rewards.
Ways to improve credit scores from poor to good:
Let’s talk about the case where you had a good credit score – but it got ruined. Your credit score didn’t just magically become poor – something happened. And finding out what went wrong is essential to lifting it.
For example, if you got blacklisted due to unpaid debt, you need to pay the debt back. If you have an outstanding balance on an account, pay it off.
There are ways to do this with or without help. I have heard horror stories where people had bad debt review experiences. And personally like to take control of my own life – and fix what I’ve broken. In the process, I recommend the following:
- Review your credit report regularly – you can legally get one credit report annually from each bureau without being charged. Note: they know EVERYTHING about you. Your mom will forget about you before they do.
- Debt consolidation – in some cases, you can make it work by consolidating your debt. The main thing is that you need to pay back what you owe (okay, I’ll stop with that now).
- Close old accounts once they’re paid off too many open accounts can impact your score
Building a credit score is proving that you’re an adult – you can pay people back what you owe them. And as silly as this sounds, most people don’t do this.
If you’re on a journey of recovering from bad credit, having a support network can be invaluable. Share your credit-building journey with your friends and family.
In a world where credit is given based on your fetish for coffee, it’s recommended that you be proactive in your credit journey. Don’t just buy stuff on debt because you can. Build a good credit score for when your future self needs it.