Credit is a topic that makes many people feel nervous. When spending on a credit card, it’s difficult to quantify exactly how much you are spending: no money changes hands, and there is no immediate financial subtraction. We often justify the amount we spend on credit with the promise that paying it back over, say, a six-month period will soften the blow. However, these transactions add up over time, to the point that the six-month period is not long enough to cover the damage.
Credit when you need it
When you apply for a personal loan, a home loan, vehicle financing or even a clothing account, your credit score will be checked. In these applications, we realise how valuable credit really is, and what a privilege it can be, if we manage it correctly. Your credit score reveals how good you are at paying back the money you owe. Your credit score is an indicator of your financial wellbeing and level of financial dependability. Based on this credit record, the powers that be will decide whether or not you are reliable enough to take out credit.
A high number of creditors, outstanding debts, or any debts you have paid late will negatively impact your credit score. A poor credit record may cause potential creditors to deny your application for credit when you really need it. Remember, you cannot even apply for a cellphone contract without a credit score. It really is a necessity!
How to improve a poor credit score
1. Be punctual
Pay all of your accounts right on time. This really is the most fail-safe method of improving your credit score. If your credit record reflects that you are someone who consistently pays accounts on time, you will look financially reliable to creditors.
However, this might not always be possible, or easy. If you feel you may be late with a payment, let your credit providers know as soon as possible.
2. Spend credit wisely!
It is easy to become dependent on your credit card, and seemingly small daily transactions can add up very quickly. When you go out for dinner, or out for a day of light shopping, take only your debit card and some cash with you. This will help you to resist those spur-of-the-moment purchases that usually have you rummaging for your credit card.
3. Learn from your mistakes
In the long term, focus on learning more about financial planning and personal finance management. Learn how to draw up a proper budget, and remember to incorporate your credit card spending into the budget. Usually, credit cards are whipped out with abandon for items that are not in the budget. Don’t make this mistake!
How to check the state of your credit score
There are a few websites that will let you check your credit score. Once a year, you can check your credit score for free on mytransunion.co.za and www.creditexpert.co.za. For a small charge, you can receive more frequent updates on the state of your credit record.
The next time you want to whip out your card for a killer pair of over-priced shoes, just remember that your potential credit providers are always watching!