New Year, new you, same debt… The start of 2019 is the perfect time to have a look at your credit profile and analyse your credit score. It’s far too easy to let your financial worries sink to the bottom of the to-do list. Your finances, to a certain extent, dictate the lifestyle you can and cannot afford. Without creating a proper monthly budget, balancing debt and living expenses becomes a guessing game.
Why Is My Credit Score Important?
Your credit score is calculated by the various credit bureaus in South Africa. Each bureau has their own, unique scoring method and score profile, meaning that scores cannot be compared. If your credit score is low at one bureau, it is likely to be low at the others as well.
Your credit score is used by credit providers to determine your risk level. The lower your credit score, the higher risk you are to the credit providers. If your score is too low the credit providers are unlikely to lend you any more money. A healthy credit score will open you up to more lending options and better interest rates.
Why Is My Credit Score Low?
If you miss or short pay your debt repayments, your accounts will fall into arrears. Missing payments will have a negative effect on your credit profile. If you have a high debt utilization, your credit score will also be negatively affected. High debt utilization means that you have used up most of the debt available to you.
Your credit score will also be lower if you are over-exposed to credit, meaning that the majority of your net income is taken up by debt repayments. This situation is likely to result in an over-indebted position.
How Do I Fix A Low Credit Score?
If you have a low credit score, the quickest way to improve on it is good payment behaviour. If you are in arrears on your accounts you will have to catch up on all of these which would mean paying over and above the required monthly debt repayments. This will prove to be difficult if you are already struggling to repay your accounts.
Consistent payment behaviour for three consecutive months will improve your financial standing. If you are unable to pay the full installments temporarily you should chat to your credit providers to try and make interim arrangements. If your debt problem is long-term and you have been struggling for a few months it would be best to contact a debt counsellor.
A debt counsellor will assess your entire financial situation and see if they can assist you with a new, affordable repayment plan. The debt counsellor will formally negotiate with all your credit providers to reduce monthly installments and interest rates. At the end of the debt counselling process, your short term debts will be fully repaid and you will be issued with a clearance certificate.