CAPE TOWN - Thanks to the National Credit Act, you’re entitled to a free up-to-date credit report every year. “Taking advantage of this free online service via a registered credit bureau is definitely a good idea,” says Soré Cloete, the senior legal manager at Old Mutual Personal Finance.

“Knowing your credit record and keeping it healthy is particularly important when applying for long-term credit – such as a home loan, or vehicle or business financing – as most credit providers check your credit and payment behaviour,” she says.

She advises you to check your credit health at least once a year. “If there are red flags on your record, make sure you address them right away. Speak to your financial adviser about how you can stay on top of your debt and make healthy credit part of your financial plan.

“Be conscious of all your outstanding debt, and ensure your payment history reflects regular and timely repayments. Credit providers have access to your financial information and can see if you have defaulted on or honoured your contracts. Knowing your credit record also means that you can take a more realistic approach to your finances.”

Cloete has five tips for improving your credit score:

1. Avoid using credit for unnecessary items and opt to pay cash if you can afford to. Close unused credit accounts that are fully paid. Forgotten retail debt can have a negative impact on your credit record. Also, avoid using one credit card to pay off another credit card. This is not paying off debt, but merely delaying repayment, which attracts more interest.

2. Pay over and above your monthly instalment amount, when possible. This will reflect positively on your payment history.

3. Contact your credit provider immediately if you are having problems paying off your debt.

4. Know the difference between good debt and bad debt. Good debt is usually classified as money borrowed to generate wealth, such as student or home loans. Bad debt refers to amounts accumulated through impulse buying where you cannot afford the repayments. Bad debt can also accumulate through purchasing basic items, such as groceries, on a credit card, instead of budgeting a monthly or weekly cash allowance for the expense.

5. Seek help from a financial adviser who can help you to draw up a holistic financial plan to manage your finances and maintain a healthy credit record.