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A Fin24 user who has never opened accounts for fear of unnecessary debt is now being punished for not having a credit record. He writes:
What is the best way to build up your credit rating in a short amount of time?
My fiancée and I have always saved up and bought everything we need in cash (cars, cellphones, clothing, household items, etc).
We never believed in opening clothing accounts, phone contracts, etc as we were always too afraid of creating unnecessary debt.
However, we recently applied for a bond (home loan) to buy a house and most of the banks declined due to our lack of a credit history (even though we have a deposit of over 25% saved up to put on the house).
What can we do? Please help!
Riaan Verbeek, group financial manager at FedGroup, responds:
The good news is that you don’t have to incur large amounts of unnecessary debt to build up a good credit record.
Your credit history is based on you being able to demonstrate that you can honour your debt commitments, regardless of the amounts involved.
My suggestions are as follows:
For all of these options, one has to be disciplined to not spend unnecessarily, and to always make payments on time.
Any late payments will reflect negatively on your rating and will take time to rectify.
Unfortunately there is no quick fix to building up a credit history, as the likes of banks and other finance providers look at your credit history over a period of time. So the sooner you start, the better.
I further suggest that you check your personal credit rating once a year at the major credit bureaus (some offer this service free of charge) which enables you to pick up on any mistakes or anomalies and have them corrected if need be.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
What is the best way to build up your credit rating in a short amount of time?
My fiancée and I have always saved up and bought everything we need in cash (cars, cellphones, clothing, household items, etc).
We never believed in opening clothing accounts, phone contracts, etc as we were always too afraid of creating unnecessary debt.
However, we recently applied for a bond (home loan) to buy a house and most of the banks declined due to our lack of a credit history (even though we have a deposit of over 25% saved up to put on the house).
What can we do? Please help!
Riaan Verbeek, group financial manager at FedGroup, responds:
The good news is that you don’t have to incur large amounts of unnecessary debt to build up a good credit record.
Your credit history is based on you being able to demonstrate that you can honour your debt commitments, regardless of the amounts involved.
My suggestions are as follows:
- Open an account at a retailer where you make regular purchases and buy one item of low value (that you would have bought anyway) on that account each month; or
- Enter into a top-up cellphone contract where you still have absolute control over your spend; or
- Open a credit card account with a very low credit limit and buy something on credit each month (that you would have bought anyway). Bear in mind that credit cards attract annual or monthly fees in most cases.
For all of these options, one has to be disciplined to not spend unnecessarily, and to always make payments on time.
Any late payments will reflect negatively on your rating and will take time to rectify.
Unfortunately there is no quick fix to building up a credit history, as the likes of banks and other finance providers look at your credit history over a period of time. So the sooner you start, the better.
I further suggest that you check your personal credit rating once a year at the major credit bureaus (some offer this service free of charge) which enables you to pick up on any mistakes or anomalies and have them corrected if need be.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
