How To Improve Your Credit Score

November 28, 2007

If you apply for mortgage finance, you do not know if you will get approved for the loan and what the percentage rate will be. Both of these depend on your credit score.

The better you credit score is, the higher your chances of an approval at a low rate.

Credit scores are based on the information in an individual’s credit report. Lenders use credit scores to evaluate the potential risk posed by lending money to consumers

A credit score is a number that reflects your credit risk level. The higher this number, the better, since a high number is an indication of lower risk.

Are all credit scores the same?

There is no single credit score. There are many different scores used in the financial industry for building a credit profile. Lenders will take different factors into account when building a credit score, depending on their own credit granting policies.

Often lenders will make use of data from credit reporting agencies (bureaus) or their own internal data to come up with their unique credit score model.

The two major credit reporting agencies in SA are Experian and TransUnion ITC and they have different information on their credit reports about you.

That means that you will have two credit reports and two credit scores.

Improve your credit score today

A lot of credit seekers do not know how a credit score is calculated. Here is a few tips that you can use to improve your credit score:

Have any incorrect information on your credit cards removed: If something is wrong you should get it sorted out because it can take a few months to get a correction.

Debt ratio: Lenders prefer a large gap between the debt you owe and your credit limit. This is known as your debt ratio and can make up to 30% of your credit file. For example, if you have credit limit of R10,000 on your credit card and you owe R9,900, this represents a very large debt ratio and could have a negative affect on your credit score. By paying off credit card balances that are close to their limit you can improve your rating.

Number and severity of late payments: Payment history is considered by lenders as the most important variable. Your payment history makes up to 35% of your score. Even though you can pay off your debt, it will reflect negatively on your credit rating if you do not always pay your debt on time. If you want a high score then you should make your payments on time.

Types of debt used (installment, revolving or credit card debt): The type of debt you have, will be responsible for 10% of your total credit score. If your revolving credit makes up the most of your credit report it will not look good on your report. The reason for this is that creditors know that the monthly minimums will vary every month depending on how much you choose to spend.

Make arrangements: If you are unable to make a payment due to unforeseen circumstances, talk to your creditor and make arrangements for paying back what you owe.

Limit credit enquiries: Avoid any unnecessary inquiries into your credit, since this is responsible for 10% of your credit report. Do not go shopping for a car and have each and every salesperson in town running a credit check report on you. Be responsible when applying for credit since this stays on your file for two years. If you seeking credit then you should limit credit checks as much as possible

Length of credit history: This will make up 15% of your credit score. If you have a history of credit, you make it easier for lenders to establish how reliable your score is.

For more information on debt consolidation, bonds and other related articles go to

Bad debt can really harm your credit history

November 22, 2007

While most people use the phrase “bad debt” to refer to a lot of debt, or just owing a lot of money, this phrase actually has a very specific use when it comes to financial issues. Bad debt in this case is a debt that cannot be collected. This usually happens when the person who owes the money goes bankrupt, and does not have the ability to pay toward the debt.

If you are a creditor and the person who owes you money declares bankruptcy, this bad debt can be a problem. After all, even though a good deal of the remaining estate will be separated out to the many different creditors, you will probably not get all of the money that you are owed. For this reason, most creditors try to work with the debtor in order to make it possible to pay back the debt – that way, they’ll get all of the money back, instead of just a little.

If you owe money and you do not believe that you can pay it, it might sound like a good idea to have that debt declared as a bad debt. However, this is not the case, as declaring bankruptcy can have lasting effects on your financial situation, whereas being in debt and working to pay off your debts can actually be beneficial in the long run.

When you have a bad debt, it makes a big hit on your credit history. This can be a big problem, especially if you need to get a credit card or a loan. In fact, the credit history can effect pretty much anything you do in the financial world, including mortgages, buying a car, and being able to take out a much needed loan. Therefore, you should do whatever you can to make sure that you’ll be able to pay off the debts you have.

To prevent bad debt, you should first minimize the number of debts you incur to begin with. For instance, if you can possibly avoid buying something, then you should wait until after you’ve saved the money for it, instead of buying on credit. If you already have a lot of debt, then you should look at some of the debt solutions, for instance, debt consolidation.

For more information on debt consolidation, bonds and other related articles go to