Give credit where credit is due: Improving your score

Credit mini-series part 3

Your credit score is calculated using five different inputs, each with its own weighting: Payment history (35%), Amounts owed (30%), Length of credit (15%), New credit (10%), and Credit mix (10%). [Refer to part1 in the series]. So how do you improve your score in order to enjoy the benefits of credit and favourable interest rates? 

Review credit report

Before you start, make sure you have taken the test. Try ClearScore for a quick and easy test. This will give you an indication of your current status and serve as a benchmark to determine your strategy going forward. 

Automate payments

To avoid missing payments or paying late, both of which have a negative impact on your credit score, consider making your payments via debit orders. These include loan repayments, memberships, subscriptions, municipal bills, leases, cell phone contracts etc. The more consistent you are in making regular payments, the quicker your credit score will improve. If you dont feel comfortable with debit orders, make sure to set reminders a few days before the relevant payment dates.

Repayment plan

Creating a repayment strategy involves evaluating all your current debt and working out a strategic plan to pay it off as efficiently as possible. Repaying your debt needs to be a deliberate, well-planned exercise. (The next article will discuss three debt repayment strategies). It also involves cutting all extra expenses and maintaining a strict budget until you have reduced your debt to manageable levels.

Keep balances low

It is important that you do not push your credit facilities to their limits. Have the discipline to manage your money without external limits needing to guide you. Institutions would typically like to see a credit utilisation of below 30%, as this will show that you are not exhausting or maxing out your credit facilities.

Length of credit history & credit mix

Successfully managing your credit over the longer-term shows that you can reliably handle your financial obligations. Additionally, managing various types of credit is determined to be less risky than having only a single type of credit facility. The goal is to maintain a healthy mix of credit (e.g. store accounts, credit cards, home loans, service contracts such as cell phone accounts and so on) in order to establish a strong credit history. 

How long does it take to rebuild your score?

It takes at least 3-6 months of good credit behaviour to see a noticeable change in your credit score. While it is impossible to put a specific time frame on credit repair, it is safe to say the less negative information you have on your report late payments, maxed-out credit cards, constant credit applications, etc. the easier it is to repair your score.