How to build a good credit record

Credit scores range from 300 to 999, depending on the credit bureau. The higher your credit score, the more likely you will qualify for credit. If your score is below 620 it’s unlikely that you will get credit. However, there are things you can do to build a good credit score.

1.Take up small credit

It’s tempting to lead a debt-free life but that can be costly when it comes to your credit score. You may qualify for credit, but the interest you pay may be higher because creditors don’t know you and you’re a big risk to them. The amount you qualify for may also be smaller compared to that of a person who has an established credit record.

Instead of having no debt at all, take a small loan or apply for a clothing store card. This is just to have a credit history which creditors can check for reference.

2. Pay on time

Now that you have established your credit record, ensure that you pay your bills on time. Missing payments can damage your credit score. Late payments are reported to the credit bureau and added 30 days after the payment was due. If your payment history is not impressive, creditors will penalise you for it. You will pay higher interest rates when you apply for credit the next time.

3. Don’t open too many accounts

Too many loans can harm your credit score. When you have more than one credit agreement, defaulting on your repayments is much easier.

ALSO READ: How to improve your credit record

Always make sure that your debt and expenses do not exceed your income. If they do, chances are that you will start depending on debt to pay your expenses.  If your debt-to-income ratio is more than 43%, creditors will view you as a high-risk client and they will charge you higher interest. Remember, if you’re overindebted, debt counselling may be the best option for you.

4. Limit your credit enquiries

Credit enquiries are divided into two categories: soft credit enquiries and hard enquiries.  Soft inquiries are when you request your own credit report or when another person requests your credit report without your knowledge – for instance, an employer. These do not affect your credit score.

However, hard credit enquiries will hit your credit score hard. A hard credit enquiry is when a lender requests your credit report from a credit bureau. Those enquiries are listed in the credit bureau.

If the creditors see that you have been applying for new credit too often in a short period of time, they will be reluctant to extend credit to you. This is because a person with six or more credit enquiries is likely to file for bankruptcy.

Having a good credit score does not only help you get a competitive interest rate. It can help you access better employment opportunities. 

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