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I made the decision that I no longer wanted debt to be a part of my life. Living a debt free life doesn’t mean that I don’t know the importance of having a good credit score.
 
Can you sustain or build a good credit score without debt?
 
Misconceptions abound when it comes to the subject of credit. Perhaps one of the biggest misconceptions about credit is the notion that you have to take on a lot of debt to earn and maintain great credit scores. In reality, the opposite is true.
 
Your credit score is not your debt score, as some would suggest. Your debt load accounts for roughly one-third of your FICO credit score. Carrying debt means you’re going to forgo most of those points.
 
Debt becomes a financial problem when you carry balances for an extended period or are paying interest. So, let’s take a look at improving your credit score without accumulating debt.

 

With a Credit Card

Let’s start with the credit-building approach. You’re likely to have the most questions about this first — credit cards. Now, I can already hear you saying ‘Wait a minute, Carrie-Anne. Don’t credit cards and debt go hand in hand?” Stick with me. I’ll explain.
 
A credit card doesn’t automatically create debt. You get to choose how to use it. Credit card debt is certainly a bad idea, one that can cost you a lot of money and damage your credit scores. But credit cards themselves are simply tools to buy stuff. As a credit card user, you decide whether you’ll use those tools in a manner that works for you or against you.
 
Look for a card with a low spending limit, which may be easier to qualify for if your credit history is limited. Make small charges that you can pay off right away, and pay the balance in full every month. This will help build a profile on your credit report of responsible credit use and reliable payment.
 
I acknowledge that credit card debt is a very real temptation. (Been there!) Here are a few tips you can use to avoid falling into the credit card debt trap.
  • Don’t carry the credit card in your wallet
  • Pay your credit card bill early online
  • Always keep a R0 balance and pay your bill in full each month.
 

Borrowing Responsibly

Credit cards aren’t the only option for building credit. Remember, your credit report is a snapshot of how well you manage what you owe. Whenever you use credit wisely, that information can be included in your credit report.
 
Credit can be a tricky thing.
 
The fact that you qualify for credit, does not mean you are ready to take it up. People who are unprepared for the responsibilities of credit often do more harm than good to their credit profile. They end up with more debt than they can handle. The golden rule of credit is to always borrow responsibly. This means taking up only what you can afford, and paying your account on time, all the time.
 
When you borrow money
  • A personal budget plan can help you manage your income, spending, debt and other liabilities. Look at your budget to find out how much money you have available every month for repayments.
  • Get a copy of your credit report to see what your credit profile looks like. A healthy credit profile means that you can negotiate better terms with credit providers.
 
To ensure that you stay on the good side of credit, ask yourself these questions before you borrow:
  • What is my reason for wanting to borrow money?
  • Is a personal loan really the best way to pay for it?
  • Can I afford the monthly loan repayments?
  • Is now the right time to borrow money?
  • How stable is my job?
 
Some actions are obviously harmful to your credit record, like paying late (or not at all), or maxing out credit cards. But some mistakes aren’t that obvious and you only realise later on that your credit record has suffered a blow. The right credit at the right time can be a major game changer to your life and your financial well-being. But taking out a loan is never a decision to be made lightly.
 

Pay Debts You Already Have

If you already have debt, you don’t need to take on more debt to increase your credit score. When you are already dealing with installment loans, like student loans, making your payments on time and not missing any payments month by month is best practice. Payment history, or showing that you are paying your bills on time, makes up 35% of your credit score
 
14 Day Financial Detox Challenge

A financial detox is the process of giving your wallet some room to breathe. It’s pressing reset on your spending habits. And it’s being more intentional about how you view and relate to money

How a bad credit score affects your life

Having a bad credit score is far worse than having no credit score. But both of these will see you living a limited life, (unless you are extremely wealthy of course). A bad credit score will also see you struggling through life. Having a bad credit score will see most financial institutions declining to grant you vehicle financing, a home loan or a personal loan.
 
Get a copy of your credit report You have to know exactly where you are standing on the credit ladder before you can attempt to improve your credit score. You should also know that more than 80% of credit reports contain errors. Go through the reports and make sure that there is no incorrect information on them. Contact the credit bureau to dispute any inaccuracies.
 
Credit can be a powerful tool to help you achieve your financial goals. It’s important to understand how it works, how to build your credit and how to ensure your credit history always works for you.

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