How do I Build Up My Credit Score?

A credit score is one of those things in life that can really creep up on you if you’re not paying attention. A tiny portion of the population actually bother to check their credit score from time to time and, as a result, it’s not uncommon for South Africans to be blindsided by bad news when they try to apply for their first major loan. Perhaps you’ve found yourself in a similar situation or maybe you’ve just heard horror stories and wish to avoid the panic altogether. Either way, your first move will be to improve your credit score as fast as possible – But how does this work? What is your credit score based on and what do you need to do to improve it? How do I Build Up My Credit Score?

There’s no point in trying to improve your credit score if we don’t even know the factors that influence it. Our first move then is to figure out what we’re being judged on and then try to improve our odds from there.

A person needs to understand what a credit score is, what factors come into play when trying to improve it, and how long will it take to improve it. This article goes on to explain the ins and outs of credit scores and how they can affect you in your day-to-day life. Take a look at some things you may be doing wrong when it comes to your credit score.

How do I Build Up My Credit Score?
How do I Build Up My Credit Score?

How is your Credit Score Calculated?

Your credit score is determined by many different factors that are considered together in order to appraise your creditworthiness. Some of the major factors include –

  • History of Repayment – Perhaps the most important factor in the eyes of creditors is your track record of paying back the money that you owe. People who make all their necessary payments on time will immediately be seen as more creditworthy than those who skip payments, pay late, or only partially repay their debts.
  • Length of Credit History – Obviously, it’s going to be difficult for creditors to get a feel for your repayment history if you’ve only been taking out and repaying loans for the past few months. A longer credit history gives the credit bureaus more information to work with and helps them to make an informed decision.
  • Total Debt – Creditors will not just consider how much money you owe, but also how much credit you have used. People who are massively in debt or those who constantly use up all of their assigned credit will be negatively impacted when it comes to their scoring.
  • Types of Credit – It’s normally better to have some variation when it comes to the types of credit that you currently have. These include installment credit, open credit and revolving credit.
  • New Accounts – Creditors will also consider how many new credit accounts you have opened and even how many accounts you have applied for lately.  

Ok, now that we know what we’re being graded on, we can start to think about how to improve our scores.

How can I Build Up my Credit Score Fast?

Depending on the state of your credit score, a quick fix may be out of the question. That said, the same tips apply regardless of your situation, and following them strictly can do wonders for your credit score –

Tips for Improving your Credit Score  

Pay your Dues – A whole bunch of outstanding debts doesn’t look good to creditors. Try to settle your overdue payments to help show that you’re a creditworthy individual. It may be a good idea to get this job done as quickly as possible because late fees tend to build up when you ignore them.  
Keep up to date with Payments – Settling your outstanding debts won’t matter much if you immediately replace them with others. Once you’ve settled your finances, try to ensure that all of your subsequent payments are made on time. Additionally, the length of your repayment history will have a strong influence on your credit score. The longer you spend paying bills on time, the better your score will become.  
Avoid Applying for New Accounts – Constant applications for new credit accounts can hurt your overall score. While it may be unavoidable at times, you should try to limit this practice where possible.  
Maintain a Low Credit Utilisation Rate – Your utilization rate shows how much of your available credit you are actually using. Simply put, a person who uses most of their available credit each month will end up with a high rate of utilization. This can negatively impact your credit score so it’s probably best to use as little of your credit as possible.  
Don’t Close your Old Accounts – Once you’ve started paying off your old accounts, it may be tempting to close them so that they can’t get out of control again. While this seems like a solid plan, it may be better to keep them open and simply avoid using them at all. Closing these accounts can actually mess with your credit utilization rate, so maybe just keep them going and ignore them instead.  

 
We’d all love to fix our credit scores in a matter of hours, but in reality, it’s normally a bit of a waiting game and a lot of patience is needed to get everything on the right track. You’re more likely to see small, stable improvements over time rather than a massive, meteoric rise overnight.

How do I Build Up My Credit Score?
How do I Build Up My Credit Score?

How can I Raise my Credit Score in 30 Days?

If you use the methods listed above, you may get lucky and start to see improvements quite soon after their implementation. Sadly, however, this is definitely the exception rather than the rule and most people will only start to notice positive developments after around three to six months have passed.

How do I Clear my Bad Credit Score in South Africa?

Unfortunately, there’s no quick fix when it comes to a bad credit score. If you want it to improve, you’ll have to tough it out and try some of the tips we’ve been through.

Cultivating these good financial habits and slowly improving your credit score may not be the most glamorous approach, but, in the long run, you’ll be happy that you made the effort.

Is it True that your Bad Credit Score will Clear after 7 Years?

Different information will remain on your credit report for varying periods of time, some negative data points can last for just a few months while others can last for a number of years. Once they’re gone, you may see your credit score improve.  

Some of the more common factors include –

  • Enquiries – Enquiries are made by creditors whenever you apply for credit. Too many enquiries can end up lowering your credit score. These last for one year.
  • Court Orders – Anytime a court orders you to pay outstanding debt, it will remain on your credit report for five years or until the amount has been paid in full.
  • Enforcement Actions – These normally occur when you have outstanding debts and your creditor is forced to send you a letter of final demand. These last for one year or until the amount has been paid in full.
  • Consumer Behaviour – These are sometimes added to your credit report to show some kind of frequent practice on your part. If, for example, you keep making late payments, your credit report may note this habit. These also remain on your report for one year or until the amount has been paid off in full.
How do I Build Up My Credit Score?
How do I Build Up My Credit Score?

In Conclusion – How Do I Build Up My Credit Score and How is it Calculated?

Your credit score is determined by multiple factors which help creditors to gauge your creditworthiness. By focusing on the positive factors and avoiding the negative ones, you will be able to gradually increase your credit score.

The primary factors that are considered include –

  • Your history of repayment.
  • The length of your credit history.
  • Your total debt.
  • The types of credit that you have open.
  • The number of new accounts you have as well as the number of applications you have recently made.

With this in mind, you can cultivate the following habits to improve your credit score –

  • Pay off any outstanding debts.
  • Keep up to date with further payments.
  • Avoid applying for new accounts.
  • Maintain a low credit utilisation rate.
  • Don’t close your old accounts – simply stop using them once your outstanding payments have been made.

If these rules are followed strictly, you should see your credit score improve over time. Sadly, however, this is seldomly a quick process and most people will only begin to see positive movement after 3-6 months. Some negative influences can be removed from your credit report over time but the exact period will depend on the nature of the infraction. That said, certain factors can be removed earlier if the outstanding fees are paid out.

Disclaimer Finance101: All of our posts are for research purposes only. Finance 101 aims to assist its readers with useful information on the laws of our country that can guide you to make financial decisions that will enable you to become more financially independent in the future. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law & finance-related queries. Should you require specific legal/financial advice we advise you to get in touch with a qualified financial expert.

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