Understanding your credit score. What impacts it and how to boost it.

There are several factors which can affect your credit score so understanding what influences yours is the first step towards improving it.

In the world of credit scores, the general rule is the higher your score, the better. However, before you even attempt boosting yours, it is important that you understand the factors that influence your credit score. In this comprehensive guide, we’ll delve into the intricacies of credit scoring and reveal ten actionable strategies to master your credit score.

What Impacts Your Credit Score?

Contrary to popular belief, there’s no one-size-fits-all formula governing credit scores. Instead, it’s a complex interplay of various elements that shape lenders’ perceptions of your financial reliability. Several factors can affect your credit score, such as:

1.     Applying for Credit

Each time you apply for credit, a credit inquiry will be conducted, and this will leave a footprint on your credit report. The occasional application may not negatively impact your score, but a sudden surge of inquiries during a short time span or consecutive rejections could lower your score. A good way of limiting the number of inquiries on your report is by assessing your eligibility before applying.

2.     Missing Payments and Defaults

Skipping payments or delaying settlements will spell trouble for your credit score. Each missed deadline adversely affects your credit report and could escalate into a default, dealing a severe blow to your financial standing. In general, defaulting on a payment carries a much heavier penalty on your credit score than missing a payment. However, all is not lost. Showing that you are making timely efforts to rectify defaults demonstrate responsibility and can mitigate the damage.

3.     Reliance on Credit

In the eyes of lenders, longevity speaks volumes. Maintaining a seasoned credit account showcases your stability and reliability in honouring financial commitments. On the flip side, a portfolio dominated by fresh accounts may raise eyebrows and potentially lower your score.

Striking the right balance in utilising your credit limits is paramount. Aim to keep your repayments within the 20% to 30% threshold of your income to signal prudent financial management. Moreover, possessing a credit card with a generous limit can boost your score, underscoring your creditworthiness.

4.     Your Public Records

Legal blemishes such as court judgments or bankruptcies cast a shadow over your credit report, signalling past indiscretions to potential lenders. Compliance with any imposed restrictions is crucial, as ignoring obligations could inflict lasting harm on your score.

5.     Lacking an Established Credit History

As lenders rely on your credit history to evaluate your risk and decide whether to lend you money, a limited credit history can make it harder to be considered for credit.  This usually happens if you are young or if you haven’t used credit facilities in the past.
Start building your credit history today by using credit responsibly.

10 Ways to Boost Your Credit Score

1.     Be Consistent when Paying:

Ensure timely and full payment of monthly instalments across all your accounts. Setting up automatic payments can simplify this process and provide peace of mind.

2.     Diversify Revolving Credit:

Demonstrate your ability to manage various types of revolving credit, such as retail accounts and credit cards, to boost your credit score.  Keep revolving credit balances well below their limits.

3.     Be Responsible:

Use credit for essential purchases and responsibly clear balances, showcasing to lenders that you pose lower risk.

4.     Maintain a Healthy Mix of Credit:

Maintain a balance between long-term and short-term credit, which can positively impact your credit score.

5.     Be Strategic and Disciplined:

Develop a realistic repayment plan and adhere to it diligently. If necessary, negotiate payment terms while maintaining open communication with your credit provider.

6.     Thoughtful Management:

Close unused facilities and minimize overall credit balances, demonstrating discipline and commitment to debt repayment.

7.     Expedite Debt Settlement:

Accelerate the process of improving your credit score by settling all outstanding accounts promptly, including store or credit cards. Even when you have months left to pay off debt, the quicker you pay it off, the better.

8.     Limit New Account Applications:

Exercise caution in applying for new accounts to avoid excessive hard inquiries, which could dent your scores. Be mindful of the potential impact on your average age of accounts.

9.     Take the Long-Term Approach:

Building enduring relationships with stores or creditors over a year or more enhances your credit score, reflecting reliability through a history of on-time payments.

10.   Review Credit Reports:

Regularly check your credit report for inaccuracies and discrepancies. Contest errors, such as falsely reported late payments, to potentially boost your credit score.