Get Your Credit Score Back On Track
How long does it take to improve your credit score?
When looking for financing options, consumers must learn about their credit score. A high credit score increases the chances of you being approved for a loan and other big purchases, such as cars and a home. You should make sure that, when applying for such loans, you’re still able to pay it back in full and on time.
Credit score? What is that?
A credit score is simply another way of saying your credit rating. Your credit score is an indicator of your financial standing.
Your credit score is based on information collected by credit bureaus and financial institutions, such as banks, credit unions, and other lenders who look at public records to determine your ability to repay a debt. These institutions that use your credit score information want to know one thing:
“If I give this person credit or a loan. Will they be able to pay me back?”
A good credit score shows that you have a solid understanding of your personal finances because you know how to manage them effectively. That’s why understanding your credit score is a sign of good financial literacy.
It's easy to find out what your personal credit score is. Knowing and understanding your credit score is very helpful before applying for any loan or working to better manage your own finances. It lets you know what you can afford, how healthy your credit is and which accounts you need to manage.
Is my credit score good enough?
Your credit score is calculated using information in your credit report, including your payment history and overall amount of debt you have. It takes time for a good score to develop. Most people think that just because they are in a high earning tax bracket they automatically have a good credit score. This is not always the case.
With time, and proper management of your accounts, debts and credit cards. Your credit score will be exactly where you need it to be.
The type or amount of loan you qualify for depends on your credit score. Different credit bureaus use different ratios for calculating scores, which can fall between 300-900 with higher numbers indicating a better chance of having the best credit history that is more positive than negative. A credit score of 670+ is a great start to a credit score, which allows people to pay back their loans without complications.
How did they get to that number?
It’s imperative to understand how your credit score is calculated. This is to better understand what the numbers mean and where they come from when you go through your credit report. Having a good credit score can help you much later down the road when trying to buy a house or car.
- Your debt payment history: Lenders use your credit score to determine whether they will give you a loan or not. One missed payment can negatively affect your credit, so it's important to make timely payments each month. Set an automatic monthly payment method if necessary.
- Credit utilisation ratio: Your credit utilisation rate is calculated as the proportion of your credit card debt to all of your accounts' outstanding limits. In a less “jargony” way, it’s how much credit you used compared to how much credit you have. With a ratio between 30–45%, you'll show lenders that you are using hard-won credit responsibly. If you have an overly high utilisation score this may point out excessive, risky tendencies.
- Credit history length: A longer credit history gives you a higher average balance which helps raise your credit score. The age of the oldest account still open, the age of your newest open account, and the overall average age of all accounts on your name will be used by creditors to determine if they're willing to give you a loan and what interest rate you qualify for.
- Your credit mix: Having a mix of credit accounts is generally a good idea, as it increases your score, but opening too many new accounts at the same time can actually bring down your score rather than increasing it.
How do I improve my credit score?
- Check your credit reports: You should check your credit score regularly to check for errors, but make sure that you are doing so through soft inquiries so that your score isn’t dinged. Enhancing one's credit rating is necessary for when you want to make big purchases like a car or a house. By having an idea of whether you have an outstanding credit history or are likely to default on your payments in future, you can either make plans to prevent the effects of overspending or figure out a way to create new opportunities for yourself.
- Keep bill payments in order: Lenders look into five key things when they take a look at credit scores. These five things have effects that vary on how much they influence your credit score.
Payment history plays a leading role when it comes to your credit score. That is why you need to keep accounts in good standing. Keeping your account paid up will help keep your credit score healthy.
- Payment history (35%)
- Credit usage (30%)
- Age of credit accounts (15%)
- Credit mix (10%)
- New credit inquiries (10%)
- Do not make too many requests for new credit: Making too many credit inquiries in a short amount of time can lower your credit score. Too many credit inquiries and requests can make lenders feel like you're desperate for cash. It could also mean that you need to go into debt. If you're trying to repair your credit score, avoid applying for any new financial obligations for a while.
- Do not close old accounts: If you have old credit accounts that aren’t in use, make sure to keep them open. Though the accounts will remain on your credit report, closing them while you have a balance on other cards may lower your available credit and increase your credit utilisation ratio. This would be bad for your score.
- You could consolidate your debt: Not all debts are created equal. Some of your debts can negatively affect your credit score. For help with servicing existing debts, you may want to consider taking out a debt consolidation loan from a bank or financial institution. A consolidation loan is essentially a one-time loan or line-of-credit that gives you the chance to pay off an existing credit card on which you owe money. Having fewer payments to keep up with each month will make it easier for you to stay on top of bills and have less of an effect on your credit score.
How long does improving my credit score take?
There is no set number of points by which your credit score can improve within any given month. There is also no set range of points that each action will affect. It all depends on some specifics when it comes to how low your credit score has become just recently. If the major negatives on your credit score are related to how much you utilise your available credit and vice versa if you reduce the amount, then your score can greatly improve in a matter of a few months.
If you find yourself with poor payment history and multiple collections, then it will take several months of staying on top of things such as paying bills and closing accounts until your higher credit habits begin showing for the better.
What’s a good credit score to get a loan in South Africa?
All lenders use different methods of calculating whether you qualify for a loan.It's important to keep your credit score in a respectable range because if you have a low credit score, you're at risk of being denied for new loans and other forms of credit. A qualifying credit score for a loan may vary depending on which bank you use.
What’s a good credit score to get a home loan in South Africa?
The minimum credit score for a home loan in South Africa is somewhere in the high 600s. This is not including your income and other financial factors. A score of 600+ should be enough to help you get a legitimate chance of approval for your loan. This may vary according to which bank you approach.
It's impossible to guess at a specific figure, but if your debt-to-income ratio is reasonably low and it is supported by a stable source of income like a job or business ownership/partnership, then you have a good chance of receiving home loan approval. Having a 750+ score will significantly boost your chances of successful loan approval.
Improving your credit score is a slow process. It may take a few months, to a year or more, to see a significant change in your score. It is not impossible, and there are some things that you can do to speed up the process. One of the most important things is to always stay on top of your credit card balances, payments and statements. If you need assistance or advice regarding your credit score, Credit Health is here to help.