Your credit score is an important figure that reflects you as a borrower. It is what every lender will check before they grant you a bank account, a credit card or a loan or mortgage.
Your credit score is a number, the higher the number the better you ‘appear’ as a borrower.
Your credit score is based on your credit file – which is essentially a history of your financial comings and goings!
It will list accounts you have had, repayments you have failed to make, applications that have been rejected and previous loans you have paid off.
The good thing is, you have the power to firstly check your credit score – this allows you to see what the lenders see before you even make an application.
Secondly, you have the power to change your credit score, although this can take time and patience for the positive changes you make to be reflected in your score.
It may take a few months before seeing the change but it can be within a month in some cases. It is definitely achievable though and certainly worth the effort.
One of the biggest negative swings for your credit file is a late payment on an existing loan or credit card. This can really throw a spanner in the works because it can take a while to correct this mistake.
So, to avoid this happening, you should set up a direct debit for any loan or credit card that covers the minimum amount every month.
Nerdwallet says, “Late payments stay on your credit report for seven years and have a powerful effect on your score.”
So, if you’ve fallen behind with one of your accounts, you need to ensure that you do your best to get it back up to date as soon as you can.
Another negative impact on your file is your credit utilisation. The more credit you use, the more your score goes down.
If you are using a lot of your credit, this makes you appear in a weaker position financially.
Think about it – if you were a lender and you saw one of your applicants already had several loans and credit cards to their name, would you want to lend them more, or would you be worried about whether they could repay you?
However there are certain things you can do which does NOT affect your credit score.
Wonga (one of the most prolific providers of online loans) says one of the most important is the ability to actually check your credit file.
In their newly published blog post they say how every South African, by law, has the right to check their credit score once a year, for free.
There was a rumour that checking your credit file leaves a mark on it, but this is false.
It does not impact on your score in any way, so check it as many times as you like or need to without having the concern it could impact negatively on your score.
Another thing which does not affect your credit score is traffic fines, which could be a relief for many!
Of course, if you fail to pay your fine and you end up in court, this then could affect your credit score.
So if you do receive a fine, it is wise to settle it straight away. The act of settling the fine also won’t appear on your account.
Similarly, utility companies and TV license fees aren’t included in your credit file, but can have an eventual impact on it if you do not pay it and have to be taken to court.
If you check your credit file and it is not quite what you had hoped to see, the overall message here is not to despair, because you DO have the power to change some aspects of it.
You could even see results within a month. This is why it is wise to financially plan ahead rather than be spontaneous with your spending.
If you are considering moving house, think carefully about the timeline for this and set a date for putting your house on the market, so that you can work towards a better looking credit file during the time between now and then.
You can work on saving money, paying off old debts and even being in a better position for better mortgage rates.
It really does pay to plan ahead and take the power into your own hands, when it comes to your credit score!
