What can you expect to learn in the credit health education series?
Key Outcome: Learning how to read and understand a credit report will give you the power to know exactly what your credit status is, and what financial and credit potential you have available.
When used responsibly, credit can be a helpful financial tool. Whether it’s taking out a home loan, securing financing for your business, or buying a car with manageable repayments. Access to credit can also help you deal promptly with unexpected, costly emergencies and can offer peace of mind when travelling.
But, when not managed correctly, credit can also lead to crippling debt. It’s important to understand how credit works so you can use credit responsibly. Using credit wisely will help you establish a positive payment history and open up doors to take advantage of future credit including car loans, home loans, credit cards, and personal or business loans. Your credit habits will directly affect your credit report and credit score, which, in turn, impacts everything from future insurance costs to employment opportunities, and housing options.
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Shortcut to the articles in the credit health series
Article 4 – Building & Improving Credit Health
There are some handy, sure-fire ways to improve your credit score, giving you much more freedom and flexibility with your lenders. Check out our guide below for more information.
5 Steps to building a credit record or history
The first step in getting credit is to ensure that you have a suitable credit record for credit lenders to view. Here are the 5 steps to get your credit record off the ground.
1. Apply for a credit card
Getting an entry-level credit card is a good start, as it can offer you a small line of credit while giving you the ability to showcase how well you pay back your debts.
2. Open a retail account
Opening an easily manageable account at a retail store is very quick and easy, which will help contribute to your credit score. If you want to purchase a cellphone or furniture, for example, just ensure that you open an account with a reliable retailer and pay any instalments on time, otherwise, you’ll be creating a bad credit score, not a good one.
3. Utility bills
Having your name on utility bills for household expenditure, such as water, electricity, rates, fixed landlines, etc, is a great step to helping build your record.
4. Make it manageable
While there are a few ways to build a credit profile, don’t overdo it. Having too many lines of credit in your name doesn’t look good, so only opt for those reputable credit sources and make sure to pay all of them on time.
5. Savings or cash buffer balances
Just because you’re aiming to build a credit profile, doesn’t mean you can’t save too. Putting money into a savings account each month will show banks that you have the financial discipline and means to think ahead, or in the worst case scenario – they can take the money from you.
7 Steps to improving your credit score
1. Use your credit card wisely
Having a credit card doesn’t necessarily mean you must use it. Try and avoid using the maximum credit that is supplied to you, and rather keep your balance to about 25% to 50% of the overall limit. This will show that you manage debt sensibly and aren’t impulsive.
2. Consolidate debt
If you have a few debts every month that you need to repay, consider consolidating these amounts. There are services that can help you combine the money you owe to various debtors, and therefore make it easier to pay back, as you’ll be paying back one single debt/amount rather than a few.
3. Pay on time
The best thing you can do to build a good credit rating is to ensure that you pay your debts on time.
4. Settle defaults or judgements
Settle any outstanding judgements or defaults or make arrangements for a payment plan so this debt can be settled as soon as possible.
5. Reduce the number of regular applications for finance
Try your absolute best not to open additional credit accounts. Unnecessary credit can harm your credit score in multiple ways, from creating too many hard inquiries on your credit report to tempting you to overspend and accumulate debt.
6. Lose what you don’t use
If you’re not using certain retail or credit accounts, clear any outstanding debt amounts and close them. Creditors look at all your credit providers, even if you’re not using them, which could make your profile ‘weaker’. Remember, the less credit against your name, the lower your risk.
7. Keep an eye on your credit rating
If you want to improve your credit score, knowing where you sit and how that affects your creditworthiness is important. Use MyFinCheck to keep check your credit score for free.