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Can you improve your credit score fast?

Credit • by Paul de Beyer • 15 August 2019
Can you improve your credit score fast? The short answer: no. Your credit score isn’t an overnight success or failure. Rather, it’s the sum total of all the financial decisions you have made for years.

What do you do if you have a low credit score? Is all hope lost? Not at all. You can make proactive changes that can make huge improvements to your overall credit score. These changes will start making a difference immediately, but could take time to have a positive effect on your credit score.

Pay your bills on time

One of the biggest influences on your credit score is how you pay your bills, especially if you are late or miss payments. Absolutely nothing will start to fix your credit score like ensuring your bills are paid on time and in full.

Late or missed payments can stay on your credit history for up to seven years, with their impact on your score slowly declining over that time. This means that missing a current payment has a far greater impact on your overall credit score than something you’ve missed five years ago.

Keep your credit card balances low, low, low

Credit cards are one of the best ways to build up a credit history and prove that you are financially responsible with credit. If you have a credit card, you can make serious improvements to your credit score quickly by ensuring that your closing balance at the end of each month is as low as possible. This simply means that you should try to owe as little as possible before the end of the month.

The reason this is so important is that one of the biggest influences on your credit score is your credit utilisation ratio. This is the total amount of debt you have across all your credit cards, divided by the amount of credit you are allowed.

For example:
If you end the month with a balance of R5 000 outstanding, but your credit limit is R15 000, then your ratio is 30%. Your credit history takes into account your average utilisation ratio over a period of time. To figure yours out, simply take your credit card statements for the past 12 months and add up the balances at the end of each month. Then, separately, add up your credit limit amount. Divide your total credit balance by your total credit limit and then multiply it by 100 to get your ratio.

For example:
Your credit limit is R15 000 per month and remains unchanged for the year. That means that your total credit limit for the year is R180 000. For the first six months of the year, your month-end balance is R5 000, however, in the last six months, it goes up to R7 500 each month. This makes your total credit balance for the year R75 000. Divide the R75 000 by R180 000 and multiply it by 100 which gives you your credit utilisation ratio of 41.6%.

Why is this so important? Well, having an average credit utilisation ratio of 30% or less is regarded as attractive to lenders. Keeping your ratio as low as possible helps improve your credit score and continues to improve it over time as you maintain a lower ratio.

Only use what you need

Using a credit card responsibly can have a positive impact on your credit score, but opening multiple accounts will not multiply that effect. In fact, the opposite can happen.

When you apply for a credit card, the lender will implement what is known as a hard enquiry. Hard enquiries are reviews of your credit report and is recorded on your report. Multiple hard enquiries over a short period of time is regarded as a red flag to lenders, even if you do not gain any extra credit from the inquiry.

Hard enquiries come from lenders who offer credit cards, home loans or bonds, or car loans, and can stay on your credit history for up to two years. You can actively improve your credit score by not applying for credit and rather use the credit facilities you already have in the best way possible.

This does not mean that having multiple credit cards is a bad thing. If you have several credit cards and they are all paid off, you should not close them. Remember, your average credit utilisation ratio is one of the biggest factors in growing or decreasing your credit score.

Therefore, keeping old credit cards open but unused lets you add their overall credit limit to your total amount each year. In our example above, if you’ve added two further credit cards, both with R15 000 limits and a balance of R0 each month, the average credit utilisation ratio would be as low as 13.8%.

Can’t win unless you know your score!

All the information above is totally useless to you unless you actively check your credit score. Luckily, this is a fairly easy thing to do. As a Creditgenie member, you get a quarterly credit report at the click of a button.

The best part? You can actually improve your credit score by simply checking it! Incorrect or fraudulent information on your credit report can have a detrimental effect on your score. Simply checking to make sure everything is correct could potentially save you from being declined credit at the time you need it most.
Log in today and check your credit score with Creditgenie.