Credit History: More is less and Less is more!

November 19, 2014

More payments, less (spending on) credit cards and more time, less interest. Does this sound confusing? Not if you look at it against the background of improving your credit history… Building up a good credit history takes time, and if it’s been tarnished for whatever reason, improving it will also take time. While you wait, it’s all about doing the right things right, paying off more rather than less to avoid attracting and spending less to over the medium to long term gain big in terms of your credit history or profile.

Your credit history is all about your credit payment pattern over time, it focuses on recent information; mortgage repayments, vehicle finance, retail accounts, etc. If your life has taken an unexpected turn, you find yourself in financial difficulty as a result and as a consequence your credit history has taken a beating, all is not lost. However, you will have to apply strict financial discipline for a period of time before you will see the changes. If the reason for your bad credit history is more serious than just you having defaulted on a repayment or two or made a late payment, you are likely to wait a number of years before your credit record or profile will be restored to its former glory.

So, what are the quick wins – things that you can do immediately to improve your bad credit history? First, access your credit profile. Most, if not all, credit bureaux afford consumers one free credit profile a year. Get yours, study it and then draft a payment plan on how you will go about improving your credit history.

Pay those accounts – on time, every time

This is one of the most important factors influencing your credit profile. For a good credit profile, pay your accounts on time. You can even pay twice a month, should it be required, once before the date the statement is due, and then again on or just before the date the payment is due. The first payment will have a positive impact on your visible payment profile, while the second payment will ensure that you don’t attract interest charged on late payments.

Apply for new credit only if and when you need it

A ‘versatile credit portfolio’ with some car finance, a few retail store cards and a personal loan might look good, but not if you can’t keep up with the repayments. Rather keep your credit portfolio small with only one or two well-managed elements and apply for other or more credit only if and when you really need it.

Don’t overcommit or overextend yourself!

The saying “cut your coat according to your cloth” is equally true of credit. Do not borrow (or spend) more than you afford to repay. This applies to credit cards as well as other credit, such as personal loans and retail store cards. “Maxing out” a credit card and using up all your credit on a retail store card immediately is easy, but keeping to the repayments, especially when compound interest adds to your account (and financial woes) is a challenge if you have other debt that you are repaying monthly, such as a mortgage bond.

The temptation to spend money on something you don’t need to impress people you don’t know is always there. Resist the temptation to fall for the retail industry’s marketing tactics to convince you to part with your hard-earned money. Be responsible and first repay your creditors.

Pay off your debt, starting now

If your credit history has suffered because you are not a responsible credit user, it is time to become one by paying off your debt. If you have a number of creditors, have a look at the amount you owe each and the interest rate that the outstanding amounts accrue. Whether this is short-term loan, a credit card or other debt, commit a larger portion of your budget that you set aside for repayments every month to pay this debt off. If it’s a credit card, do not to use the credit card while you are paying it off, as the rationale behind you committing more money towards its repayment is to pay it off quicker and save on the ‘expensive’ interest accrued on the outstanding balance.

Request an increase on your credit card limit – only if you’re disciplined

If you are likely to spend more because you have more credit, then you shouldn’t choose this option. However, if you know you are responsible and you will not use the additional credit, discuss this option with the financial institution where your credit card account is held. Once the higher limit has been approved, you consistently spend less than the overall (higher) limit. This will have a positive impact on your credit profile and record and improve your history over time. Please only explore this option if you are self-disciplined.

Have you had many unexpected events in one month? Pay more often.

While on the topic of credit cards – it can happen that you experience more than one unexpected event that requires more funds than usual in one month. Extensive home maintenance, medical expenses and perhaps a co-payment on a motor vehicle accident are examples of such events that could occur in one month and that you paid for using your credit card. In the month following this one or as soon as you are able to, make an additional payment into your credit card to ‘make up’ for the unexpectedly high spend the previous month.

Are you struggling to make ends meet? Communicate!

It’s difficult and will require you to swallow your pride, but if you are struggling to make ends meet talk to your creditors before it is too late. If you have had a good credit history until things fell apart, they will be willing to accommodate you in the interest of recovering the debt. You could also consider seeking help from a professional debt counsellor, who will negotiate with your creditors on your behalf, perhaps even create a program in order to consolidate your debt into one account.

There are no quick fixes to repairing a damaged credit history. However, if you have the right attitude and self-discipline to follow through on the actions as explained above, you can over time restore your credit history to its former glory.

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