How to improve your credit (+ qualify for a home loan)

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. 610+ is passable, while 800+ is excellent.
• Your credit score is calculated according to your past payments, debts and other financial activity.
• There are ways to provide an immediate boost to your credit score, such as paying off debts.
• Other tips include 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.

A credit score of 610+ is considered passable, while 800+ is excellent. You can get your credit score checked with our free, online tool, the Bond Indicator.

So what if your credit score isn’t up to scratch? Don’t worry. Here we present ways to improve it.

How to improve your credit score

1. Check credit reports for errors.
2. Pay outstanding debts.
3. Reduce credit ratio to below 30%.
4. Settle and close accounts.
5. Limit requests for new credit.
6. Encourage your spouse to take the same measures.

1.  Check credit reports for errors

• One measure you can take immediately is to check your credit report for errors and inconsistencies.
• Credit bureaus calculate your credit record 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.
• You could take a loan from the bank to pay off your debts. This way, you consolidate all your debts into one.

3. Reduce your credit ratio to below 30%

• 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 off credit cards in full will keep your credit ratio from spiralling out of control.
• You could request a credit limit increase in order to improve your utilisation ratio.

 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. Limit requests for new 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.
• Hard inquiries on your credit can affect your credit score. Hard inquiries include applications for a credit card, home loan or car loan. This is opposed to soft inquiries which include checking your own credit record or having a financial institution check it.

6. Encourage your spouse to take 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 a 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.