7 Sure Ways To Improve Your Credit Score In 2024
Introduction:
The fact that you have landed on this blog tells me either you are applying for a loan or have been denied credit. You want to know how credit score works and how to improve yours. Relax, you are at the right place, we have 7 simple jargon free strategies just to do that.
Getting a loan with bad credit can be challenging, your score is crucial when applying for credit or loans but many people only realize its importance when they get denied. It’s a numeric representation of your creditworthiness and having a low score indicates a higher risk for lenders, but the solution is simple, work and improve your score.
Maintaining a good score is essential for successful credit applications. As all other things in life, it comes down to how responsible one is as far as credit is concerned. Please, see below a simple explanation and key things that matter.
Your Credit Score:
“Bad credit” doesn’t necessarily mean you’re a desperate borrower, it could just indicate your bad credit history. If you’ve been denied credit, it’s likely because your score didn’t meet the lender’s minimum requirements. For alternative loan options, even when your credit score is low, go through our article “Bad Credit? Micro Loans Can Help Now.”
There are two main reasons people have low or bad scores:
- Active borrowers with past challenges: You’ve been active in the credit market but faced financial difficulties like job loss, leading to missed payments and a lowered credit score.
- No credit history: You’ve never used credit before, so there’s no information for lenders to base your score on limiting your options.
Why Good Credit Matters:
A good credit score is crucial for accessing loans and other financial products. Lenders view borrowers with low scores as higher risk, making them less likely to approve your application. You can check your report on free websites as mentioned below.
Understanding Your Credit Standing:
- Payment history:
Timely payments boost your score while late or missed payments hurt it significantly.
- Credit utilization:
Keeping your credit card balances low compared to your limits improves your score. For importance of responsible credit use to securing personal loans even with bad credit, our helpful advice is go through our article “Get Your Personal Loans With Bad Credit Now!”
- Length of credit history:
The longer you’ve used credit responsibly, the better your score.
- New credit applications:
Applying for too many loans or credit cards in a short period can lower your score.
Checking Your Lending Score:
It’s necessary to regularly check your credit score report and score from credit bureaus like Transunion, Experian or Compuscan. You can usually get one free report per year or pay for additional access.
7 Simple Strategies To Improve Your Credit Score:
If your score needs a boost, here are some tips:
1 – Pay your bills on time:
This is the single most important factor in improving your credit score. There are a number of ways on how you can pay bills on time, one is to set a Pre-Authorize with the service provider so that when the bill is due then they can take out the payment directly from your bank account.
Secondly, whenever you get the invoice, set up a recurring payment from your bank account so that when the due date comes then the bank pays the bill as per your instructions. When setting up the Pre-Authorize payment it’s always good to have overdraft protection on your bank account just to cover the payment if the account has less cash.
2 – Keep your credit utilization low:
Aim to use less than 30% of your credit card limits. This is very important because there is a process that runs at the back which repairs if there is any damage done in the past to the credit, the process stops if you reach a certain percentage, so try not to stay above 30% on your credit cards for a longer period. This way you can keep low credit utilization.
Another way to have a low credit utilization would be to not to have unessorssory credit cards and lines of credits, sometimes even if you are not using the limits and you have 4 or 5 different credit cards or lines of credit then you might be exposed to too much credit.
3 – Avoid applying for too much new credit:
Limit your applications to avoid unnecessary inquiries impacting your score.Every time you apply for a new line of credit, such as a credit card, loan, or mortgage, the lender makes a hard inquiry on your credit report. This inquiry stays on your report for up to two years, and multiple inquiries in a short period of time can lower your grade.
4 – Dispute errors on your credit report:
Ensure all information is accurate and up-to-date.Errors like misidentified accounts or outdated balances can drag down your credit score.Identify and challenge errors like mismatched accounts or incorrect balances with the bureaus directly, providing documentation like bills or proof of identity. As you have understood importance of disputing credit errors, you can go through “7 Tips for Securing Bad Credit Loans” to get some tips on securing loans despite past challenges.
5 – Reduce your debt-to-income ratio:
This ratio is calculated by dividing your total monthly debt payments by your gross monthly income. A lower debt-to-income ratio is more attractive to lenders. If you can, try to pay down some of your existing debt before applying for a new loan.
6 – Manage Revolving Account Balances
- Review Your Credit Card Balances:
Start by reviewing the balances on your credit cards and lines of credit.
- Create a Payment Plan:
Develop a payment plan to reduce your balances. You can prioritize paying off high-interest accounts or those with the highest balances.
- Make Timely Payments:
Ensure that you make at least the minimum payments on time for all your accounts to avoid late fees and negative impacts on your grade.
- Avoid Closing Unused Accounts:
While paying down balances, avoid closing unused accounts as this can affect your credit utilization ratio negatively.
- Monitor Your Progress:
Regularly monitor your credit card balances and credit utilization ratio to track your progress
7 – Diversify Your Credit Mix:
This point can’t be stressed enough, when lenders look at an application, they look at the borrower’s profile, thus handling just only one type of loan in the past might not give a convincing picture. A good idea would be diverse forms like, credit cards, car installment etc
This of course doesn’t mean that credit needs to be seeked at every opportunity, but only when necessary and you can handle payments comfortably. The bottom line is showing financial responsibility.
For guidance of low-income individuals on how to maintain timely payments while accessing credit options that match their income level please read “Loans For Low-Income In South Africa.”
Getting Loans with Bad Credit:
While having bad credit can make getting loans challenging, it’s not impossible. Some lenders specialize in assisting high-risk borrowers. However, be prepared for potentially higher interest rates or shorter loan terms.
Government support
Governments and local authorities provide special credit programs to assist people with bad credit score. These programs aim to help individuals facing financial challenges and need loans for emergencies, home repairs or starting small businesses. Research these programs and apply either online or in person. Note that some short-term loans may be available through regular banks.
Before You Apply:
Before applying for a loan, consider the following:
- Are you under debt review or have other financial difficulties? These may affect your eligibility.
- Can you meet the basic requirements, such as age and employment status?
- Do you have the necessary documentation, like bank statements and proof of income?
To apply for a loan:
- You don’t qualify if you are under debt review, administration or sequestration.
- Your application undergoes a Credit Check and Affordability assessment as per National Credit Register regulations.
- Age requirement: 21 to 60 years old.
- You must be employed for at least 6 months continuously with the same company.
- Employment will be verified.
- You need a valid South African bank account in your name.
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We don’t assist self-employed individuals or business owners.
Frequently Asked Questions:
What is a good credit score?
In South Africa, a good score is within the range of 670 to 739. See below score ranges in South Africa:
- 800-850: Excellent
- 740-799: Very good
- 670-739: Good
- 610-669: Fair
- 500-610: Poor
- 300-499: Very poor
- Below 300: No credit history
What does creditworthiness mean?
It is a tool used by lenders such as banks and credit card companies to assess the risk of lending money.
Does South Africa have a credit score system?
Yes, in South Africa, credit bureaus play an important role in collecting and maintaining credit information about individuals.
What is a bad credit score in SA?
Points below 580 would generally be considered a “poor” credit score in South Africa.
What are the minimum points needed to get a credit card in South Africa?
A score in the range of 670 and above is often considered good, and individuals with such scores are more likely to be eligible for credit cards.
Conclusion:
Building and maintaining good credit is essential for financial stability. By understanding your credit score, taking steps to improve it and being prepared before applying for loans, you can navigate the credit more confidently, even with past challenges. Applying for a loan is free. If you failed initially, try again in future, as conditions change and a reapplication might give you better results.