Highlights in this issue:

*** Fixing “deadly” credit sins is easier than you think…
*** Only paying off the minimum? You could be stuck in debt for up to 25 years…
*** 5 tips to improving your rating…

-----------------------------------------
From the pen of Karin Iten…

Dear Investment Academy Reader,

720. That’s the most important number you’ll ever need to have when it comes to your finances. Why? Because a credit score below that will mean you won’t qualify for the best credit rate out there. And that means you’re paying more interest on the money you’re borrowing.

But have you ever wondered what impacts your credit score? Have you ever made one (or more) of these costly credit mistakes without even knowing it? Chances are, you have. But before you get into a panic and let someone fool you into thinking you need to hire a professional to help repair your credit rating, remember this, fixing credit sins is easier than you think…

Deadly sin #1: Not using credit to negotiate the best deals

A high credit score is an incredible negotiation tool. So don’t forget to check your credit score before a major purchase to see exactly where you stand. This way, you’ll be able to work out reduced prices on car and home loans, as well as credit cards and insurance policies by leveraging your credit scores.

How to fix it: Apply for a free report at www.mycredit.co.za. If your credit rating is less than ideal, work on raising it before you apply for more credit. Check out the box at the end of the article to discover five ways to do just that.

Deadly sin #2: Only paying off the minimum

As a card holder, minimum monthly payments are your enemy. Consider this: A typical household with R6,600 of credit card debt making minimum monthly payments would take over 25 years to pay off their balance – and that's with a decent interest rate! If you’re only paying the bare minimum, “it's nearly impossible to make a dent in your debt,” says money management guru Janna Weiss.

How to fix it: If you’re already carrying a balance, look for ways to step up payments. Talk to your bank manager about the options open to you and, if all else fails, consider taking out a loan to pay the debt off. (At least this way, you’ll be paying off the same amount at a much smaller interest rate.)

Deadly sin #3: Excessively shopping for credit

Every time you fill out a credit application, you give the credit provider permission to access your credit report. When they do, your credit report stores this information as an “enquiry” for 24 months. Doesn’t sound too hectic does it? But it’s a statistical fact that consumers who have more enquiries are higher credit risks than consumers with fewer enquiries. For this reason, the more enquiries you have, the more points you’ll lose on your credit score.

How to fix it: If you aren’t applying for a big amount (like vehicle financing or a home loan), ask your bank to up your credit limit instead. If you’ve been a good client – paying back what you owe with plenty time to spare – they should be more than happy to negotiate with you. And try not to have more than three enquiries every six months. If you do, lenders will think you’re a frivolous spender and they’ll be more likely to turn you down.

Deadly sin #4: Using your credit facilities badly

This may sound strange, but to get a good credit score you actually need to use your credit. Let’s say you have a credit facility of R20,000 on your credit card and you’re only using R6,000 of this facility (in other words, this is the balance on your credit card). If you apply for a bond, for example, the bank will check with the National Credit Register to find out how much money you potentially owe. It won’t look at how much you actually owe – but how much credit you can potentially get – in this case R20,000. So it doesn’t matter whether you’ve never actually used the full amount, what matters is that you have access to it.

How to fix it: Reduce your credit limit to slightly more than what you expect to need each month. Say, for example, you spend an average of R4,000 on your credit card each month, ask your bank to cap your limit at R5,500. This gives you a bit of leeway for unexpected expenses but still shows potential lenders you aren’t drowning under huge debt repayments.

5 strategies to improve your rating!

1. Make loan payments on time and for the correct amount.
2. Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements.
3. Make sure you don’t have a credit card from a financing company, as this can negatively affect your score.
4. Open numerous store accounts and be sure to pay these accounts on time – this can dramatically increase your rating!
5. Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly.

Here’s to your financial freedom,

Karin Iten
For the Investment Academy