How to get your credit score back on track in 2021
While the economic crisis caused by the Covid-19 pandemic has left 85% of South Africans in need of financial help, recent data has shown that South African’s credit scores are going up after the national lockdown which began in March this year.
The light at the end of the tunnel shows that 51% of South Africans now have a higher credit score than they did before lockdown. Short-term loan providers attribute the improvement of credit scores to a temporary reduction in defaults because of payment holidays offered to consumers at the beginning of lockdown.
Get Help From a Financial Coach
Ayanda Ndimande, Business Development Manager of Retail Credit at Sanlam explains that as one would rely on a fitness trainer to advise them on the best fitness routines suited for them and a life coach for mentorship, so should one have a financial coach to guide them regarding their finances.
So how can you take your credit score to the next level? Ndimande advises that consumers can do this with the help of a financial coach.
“A financial coach works with you on a continuous basis, focusing on the “here and now” by helping you better understand your financial profile to become and stay financially secure. This includes understanding your specific financial challenges and the steps that need to be taken to improve your credit score. If you have a view and understanding of both sides of your personal balance sheet, it is the first step in becoming financially fit,” explains Ndimande. A financial planner on the other hand helps you holistically plan your portfolio to ensure you have adequate cover for your life circumstances.
Calculating Your Credit Score
If you want to understand how your credit score is calculated, why credit providers use this score to decide if you are a good or bad credit risk and how a good score can benefit you to negotiate interest rates, it is best to get a financial coach on board.
Below, Ndimande discusses how your credit score is calculated:
How you pay your credit obligations both currently and historically. This accounts for 35% of the score. A missed or late payment affects the score negatively.
How much and how often you utilise credit made available to you. This takes 30% of the calculation and is based on the balances owed on loans and credit cards.
The length of time you have actively used credit. The longer the history of credit and on time payment, the better the score. It is good to have debt that is well managed and is taken for good reasons. This contributes 15% to the overall score.
The type of credit available across all credit products contributes 10%. A mixture of long- and short-term credit can be favourable.
Manage Your Credit
The most important aspects of credit are payment performance, managing credit and good credit utilisation.
Ndimande advises that consumers use Sanlam’s credit dashboard to check their credit and wellness score which also provides the assistance of a free credit management coach to guide you on the right steps to take to improve and maintain a good credit score.
Improving your financial wellbeing is just as important as maintaining a good overall wellbeing. Consumers can do this by being aware of their finances every day so that they know what they are spending and how much they are saving. “With the assistance of a financial coach, you don’t need to do it on your own”, concludes Ndimande.