When you’re looking to borrow money, your credit score matters. Lenders will often conduct a credit check to see how you have managed credit in the past and determine whether they are willing to lend to you. But what happens if your credit score isn’t where you want it to be? This is when you’ll want to build your credit score by borrowing responsibly.
Factors That May Influence Your Score
When you’re looking to build your credit score, it’s important to understand how it’s calculated. While each credit referencing agency may use different factors, there are key things that will impact your score.
Missing Payments
If you regularly miss payments, it can negatively impact your credit score. If you continue to miss payments, you may also receive a default, which can negatively impact your score for up to six years.
Getting Too Close to Your Credit Limit
Lenders like to see that you can manage your credit well, particularly that you’re not using everything you have. If you approach your limit too closely and stay there, it could negatively impact your score.
Applying for Credit Too Frequently
Likewise, if you’re making multiple credit applications in a short space of time, this can hurt your credit score. Each time you make an application, a hard search will be carried out. This can cause your score to drop.
Borrowing More Than You Can Afford
When you’re looking to improve your credit score, you should always avoid borrowing more than you can afford. If you struggle to pay back what you owe, it can make it much harder for you to get further credit in the future. It could also lead to things like a County Court Judgement (CCJ) being recorded on your file.
Strategies for Improving Your Score
So now that you’re more aware of what could be impacting your score, it’s time to think about what you can do to improve it. If you know that you want to be able to build your credit score, you will find that these options can help you:
Make Payments on Time
Make sure that you’re covering at least the minimum on credit cards and that you pay by the due date. For things like loans or a mortgage, make sure that you have a direct debit in place. Making regular payments on time will show lenders that you’re a good candidate for credit. It will also make you look more reliable.
Keep Your Credit Utilisation Low
Another favourable thing that lenders like is a low credit utilisation. This is the amount of money you currently owe in comparison to the total limit. If you have a credit card with a limit of R1,000 and you have a balance of R200, that gives you a credit utilisation of 20%. Lenders like to see a credit utilisation of below 25%, so it’s important to keep this in mind.
Build Your Credit History Up
Having a solid credit history can work in your favour. But if you have little to no credit history, it can go against you. So, here, looking to build up your credit history can help you. This is often the case for young people who have never had credit before or are newcomers to the country.
Keep Older Accounts Open
It also helps if you can keep older accounts open. Lenders like to see that you’ve been reliable with your credit usage over time, meaning older accounts tend to help your score. When you’re able to manage a range of different credit accounts over a long period, it can support you in improving your credit score.
When you want to build your credit score, it’s important to make sure that you’re being responsible with the accounts you have. Looking to use as much of your credit as possible, make your payments on time, and space out your credit applications can help. If your credit is less than perfect now, following the steps outlined in this post will get you on your way to improving your credit score over time.
