Credit scores play a pivotal role in personal finance, yet our education system often overlooks their importance. In the next 3 minutes, you’ll learn about 7 ways your credit score is affected – vital information that should have been taught in school!
The importance of knowing these factors cannot be overstated, as they are key to unlocking better financial opportunities and living a more prosperous life.
(What the school system should have taught you, but never did.)
1. Late or missed payments
One of the most significant factors affecting your credit score is your payment history. Consistently paying your bills on time demonstrates to lenders that you are a responsible borrower. Late or missed payments, on the other hand, can severely damage your credit score. To avoid this, set up reminders or automate your payments to ensure timely bill settlements.
2. High credit utilisation
Your credit utilisation ratio is the percentage of your available credit that you’re using. It’s essential to keep this ratio as low as possible – ideally below 30%. Consistently using a large portion of your available credit can indicate that you’re overextended and might struggle to repay your debts, resulting in a lower credit score.
3. Closing old accounts
Closing old credit accounts can hurt your credit score by reducing the overall age of your credit history. A longer credit history typically equates to a better credit score, as it demonstrates a longer track record of responsible borrowing. It’s better to keep your old accounts open and maintain a zero balance, which will also help lower your credit utilisation.
4. Applying for multiple credit accounts in a short period
Each time you apply for a loan, credit card, or any form of credit, a hard inquiry is made on your credit report. Multiple hard inquiries in a short period can indicate to lenders that you’re desperate for credit, which may lead to a lower credit score. Space out your credit applications and only apply for credit when necessary.
5. Ignoring your credit report
It’s crucial to regularly check your credit report for errors, inaccuracies, or fraudulent activity. These issues can negatively impact your credit score if left unaddressed. South Africans are entitled to one free credit report per year from each credit bureau, so be sure to take advantage of this and report any discrepancies to the relevant bureau.
6. Defaulting on loans
Defaulting on a loan has severe consequences for your credit score. A loan default will remain on your credit report for several years, making it difficult to obtain new credit during this time. If you’re struggling to make your loan payments, contact your lender to discuss options for restructuring your debt or adjusting your payment plan.
7. Co-signing loans
Co-signing a loan puts your credit score at risk, as you become equally responsible for repaying the debt. If the primary borrower fails to make payments, your credit score will suffer. Only co-sign a loan if you’re confident in the borrower’s ability to repay the debt and be prepared to take responsibility for the payments if necessary.
The #1 Way To Improve Your Credit Score:
If you have debt over R50,000 that is causing you to stress, it may be affecting your credit score too. Find out how much you can reduce your debt and lower your monthly payments by getting a free debt quote below!
Taking control of your finances and reducing your stress will set you on the path to a brighter financial future. Don’t wait – take action now!
