'Improve your credit score' first appeared on iafrica.com on 2 June 2009. It is the 8th most read 'Financial fitness' article of the past year. 

Regard your good name as the richest jewel you can possibly be possessed of ? for credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it you will find it an arduous task to rekindle it again. The way to gain a good reputation is to endeavour to be what you desire to appear. ? Socrates (Greek philosopher; 469 BCE - 399 BCE)

It's hard to build, yet easy to destroy. It follows you wherever you go and affords you the benefit of the doubt. Your good name is priceless.

Your credit record is your financial 'good name'. It's your reputation in the eyes of credit- and other service providers and it's one of the most important considerations when deciding if they should lend you money.

Your credit score is an attempt to quantify how much risk a lender is taking on by loaning you money. A credit provider will look to your credit score to determine if you are 'credit worthy' ? the better your score the more likely they'll grant you a loan. In addition to making loan applications easier, a good credit score is also a great bargaining tool when you're negotiating for a lower interest rate.

Experian and TransUnion ITC are the two main credit reporting agencies in South Africa and these all-seeing, all-knowing credit bureaus adjust your score each time you borrow or repay debt.

Creditors choose which bureau to use and each one has different information about you, meaning that you have two credit scores. It's also possible for lenders to produce a unique score for you using their own records.

Of late, banks and other credit providers seem terrified of lending so it's a good idea to work on your credit score before applying for a mortgage or other loan.

Here is some advice on how you can do just that:

 

1. Pay on time

   Paying on time is, obviously, a vital determinant of your credit score. In fact, your payment history can contribute up to 35 percent of your score.

   Each time you're late, even by a day, it gets noted and your score decreases. To ensure this never happens I suggest you set up debit orders or postdate payments you make online.

   Recent transactions carry more weight than older ones, so it's fairly easy to erase earlier blots if you consistently start making timely payments.

   Remember, it doesn't matter that you can pay; you must pay on time.

    

2. Pay your credit cards off

   Nothing shows you can handle being in debt more than regularly making payments on your credit cards and keeping their balances down.

    

3. Don't end up in court for paying late

   It's fairly easy to negate the damage of a late payment by simply being on time with all subsequent ones. If, however, you end up in court your record will be irreparable for many years.

    

4. Don't take on too much debt

   Try to have only one, but no more than two credit cards and no more than two major debts (e.g. a home- or car loan).

   Never max out your credit cards and try to keep the outstanding balance below half of your credit limit. The lower your balance in relation to your credit limit, the better it is for your credit score.

   Avoid taking on more credit while you are paying off other debts.

   Aim to cut what you spend on debt each month to less than 30 percent of your after-tax income.

    

5. The devil is in the debt ratio

   Your debt ratio ? the difference between what you owe and your credit limit ? can make up 30 percent of your credit score. Creditors like that gap to be gaping and it will be detrimental to your rating if you, for example, owe R14 500 with a limit of R15 000.

   If you're planning to apply for a big loan, first pay off all balances that are close to their limit. Don't submit your application until all outstanding balances are less than 50 percent of their respective limits.

   Never ask your creditors to lower your limits as this will instantly reduce that all important gap between your balances and the credit available to you.

   When paying off debt it's cheaper to tackle those with the highest interest rates first. However, when you're trying to improve your credit record it's best to first pay debts that are the closest to their maximum limits.

    

6. Close idle lines of credit

   Having fewer lines of credit available to you makes you less risky to creditors. Close all unused credit cards and accounts and have the creditors notify the credit bureaus that the accounts were close by you and not them.

    

7. Keep credit enquiries few and far between

   'Hunting' for credit can trim up to 10 percent off your credit score so it's best not to make any unnecessary enquiries. Every time someone runs a credit check on you it gets noted and negatively impacts your score.

    

8. Don't move balances from card to card

    

9. Avoid credit repair agencies

   There's really no need to go to a credit repair agency as you can fairly easily do it yourself (go to www.credithealth.co.za). These companies charge about R5000 to repair your record and many are scammers, so it's best to avoid them completely.

    

10. Revolving credit is bad for your score

    The nature of your debts can be responsible for up to 10 percent of your credit score. If revolving credit ? those lines that can be used up to a predetermined limit or paid down at any time (e.g. credit card) ? makes up most of your total debt then your score won't be good.

     

11. No history, no credit

    While having too much debt is obviously bad for your record, having had too little will also count against you.

    The duration of your credit history (how long you've been a credit consumer) can make up to 15 percent of your credit score. If you have no, or a very short, history of credit then credit providers won't be able to trust that your credit score is an accurate reflection of your credit worthiness.

    If you want a loan but have no credit history, consider getting a credit card and pay it off completely each month. In this way you'll indicate that you're a responsible debtor that won't cause the lender trouble.

    Your aversion to debt is not misplaced, but using a credit card to build a credit history can be a good idea.

    Use an online comparison tool to find a fee-free card and pay it off in full before the interest free period expires.

     

12. Check your spouse's rating

    Creditors also have access to your spouse's credit record and this could impact negatively on yours if it's very bad.

     

13. Make arrangements to pay

    If you find it impossible to make a payment, talk to your creditors and make arrangements to pay when you're able to. Contact them as soon as you foresee trouble; don't wait for them to contact you.

     

14. Obtain a copy of your credit report and look for errors

    About 80 percent of credit reports contain errors so it's vital that you check both your credit records (you can get them from Credit Health for a small fee) before applying for a loan.

    The most common errors to look out for are accounts that aren't yours (possibly indicating identity theft), incorrect information about your accounts and information that is too old to still appear on your record (all judgments against you should be removed after five years while unfavourable information can only be kept for two years).

    Contact your creditors to inform the credit bureaus if you found that your report doesn't accurately reflect all the payments you made. Insist on a written confirmation that they have indeed done this.