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How to improve your credit score in six steps

Your credit score plays a significant role in determining your chance of home loan approval. Here are six ways to boost your credit score.

How To Improve Credit Score

Article summary

  • Your credit score is a three-digit number between 000 and 999 that tells the bank how much of a risk you are.
  • Your credit score is calculated according to your past payments, debts and other financial activity.
  • Improving your credit score usually takes around six months, although some methods can provide an immediate boost.
  • Methods for improving your credit score include paying off debt and reducing the amount of credit you use as a percentage of what’s available.

Your credit score is a three-digit number between 000 and 999 that tells the bank how much of a risk you are. It is one of the most significant factors in determining whether you get home loan approval.

What is a good credit score?

A credit score of 600+ is considered passable, and is probably high enough to get your home loan application approved, depending on the lending criteria of the bank.

A credit score of 800+ is excellent, and home buyers will want to do whatever they can to achieve such a score.

How do I calculate my credit score?

You can use ooba Home Loans’ Bond Indicator, a free, online tool, to determine your credit score.

How to improve your credit score quickly

If you’re worried your credit score might not be high enough, or you’ve already had an application rejected, fear not, as there are ways to improve your credit score.

Some of these methods will only take effect in the long-term (in most cases, it will take six months on average to see improvement in your credit score); while others can provide an immediate boost. The following suggestions include methods that may even improve your credit score within 30 days.

1. Check credit reports for errors

One measure you can take immediately is to check your credit report for errors and inconsistencies. Your credit record is calculated by credit bureaus, using your payment and account history, but the report could be subject to mistakes.

Contest some of the black marks on your credit record, such as late payments that weren’t late, and you may be able to earn yourself a few extra points.

2. Pay off outstanding debts

Outstanding debts have a significant impact on your credit record, so pay off as much and as many as you can. Start with credit card accounts as they usually have the highest interest rates.

3. Reduce your credit ratio

The gap between the amount you owe and the limit to your credit affects your credit record. This is known as your credit utilization ratio. For example, if your available credit is R20 000 and you owe R10 000, your credit utilization ratio is 50%.

A good rule of thumb is to keep your credit utilization ratio at 30% or lower. So in the above example, paying down what you owe in order to reduce the 50% rate to 30% will boost your credit score. Paying your account before the due date also increases your score.

The credit utilization ratio is one of the primary factors in determining your credit score, along with payment history.

4. Settle and close accounts

Closing accounts after you’ve settled them will reduce the number of credit accounts attached to your name. Having too many accounts open will negatively impact your credit score, as it signifies a high amount of borrowing.

5. Avoid using credit

Naturally, you should show restraint when using available credit while you take the necessary steps to improve your credit record. Avoid taking on new debt and opening new accounts.

6. Ensure your spouse takes the same measures

The credit record of your spouse will also be taken into account if you apply for a joint home loan, or are married in community of property. So if your spouse takes the same steps listed above to improve their own credit record, you improve your chances of home loan approval.

Buy a home with renewed confidence

Once you’ve taken the necessary steps and seen an improvement in your credit score, it’s time to apply for a home loan with improved confidence. ooba Home Loans can apply to multiple banks on your behalf, giving you the best chance of home loan approval, as some banks may have stricter lending criteria than others.

They also offer a range of tools that can make the home-buying process easier. Start with their Bond Calculator, then use the ooba Home Loans Bond Indicator to determine what you can afford. When you’re ready, you can apply for a home loan.

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