What does it mean if I have a balance or limit volatility?

This means that your credit account limit or balance has fluctuated significantly over the last 12 months. This could be because your limit has either been increased or decreased. Alternatively, this could be because the varying balance on your credit accounts is indicating a high risk. Let’s dive a little deeper into these two instances which could affect your credit score.

 

Limit increase

If you request a credit limit increase, the credit provider may need to do some further investigating. This investigation is to see whether you can afford a credit increase. In this instance, there may be a hard enquiry that is done on your credit report. A hard enquiry will affect your credit score.

Limit decrease

If you requested a limit decrease or your credit provider decreased your limit, this could influence your credit score. An important factor in determining your credit score is your credit utilization ratio. To work out your credit utilization ratio, you divide your overall balances by your total credit limit and multiply that by 100 to give you a percentage. Your credit utilization ratio should be less than 30%. If your credit limit decreases and your balance remains the same, this could push your credit utilization ratio to over 30%. For example, if you have a credit balance of R5000 and a total limit of R18 000 you have a credit utilization ratio of 27,78%. If your credit limit gets decreased to R14 000, your credit utilization ratio jumps up to 35,71%. Having a credit utilization ratio over 30% could affect your credit score.

Balance volatility

Balance volatility could also be impacted by your credit utilization ratio. A credit score is influenced by the information that is displayed on a credit report at the time the score is requested. Different credit providers may report your balances to the credit bureaus at different times. Using more than 30% of your credit utilization then paying of the credit balance within a billing cycle can indicate balance volatility. You need to ensure that you are using less than 30% of your credit utilization going forward.

Also, try to make your credit repayments every 2 weeks, rather than just once a month. Your credit score will improve, as you are lowering your credit utilization.

What do I do if I have a balance or limit of zero on my accounts?

Your credit account balance is a factor that will affect your credit score. If you have a high balance, this can negatively affect your credit score, but having a balance of zero could potentially harm your credit score too.

 

What does having a zero balance mean?

Having a zero balance on a credit account can mean one of two things. Firstly, a zero balance could mean that you are paying off your credit in full every month and this is a good thing. On the other hand, a zero balance can mean that you have not been using the credit account.

What will happen if I am not using an account?

If you are not using a credit account, the credit provider may stop issuing information to the credit bureaus about this account. This can negatively impact your credit score. The credit bureaus rely on credit providers to give updates as to the status of people’s accounts. Ultimately, after a certain time of inactively on the account, the credit provider may even close the credit account.

What does it matter if an account that I am not using gets closed?

The closing of a credit account will lower your available credit and your credit utilization. This is because your credit utilization looks at your total available credit. If an account that has a high limit gets closed due to inactivity, this will increase your credit utilization, even if you’re not spending any more than usual.

Secondly, closing an account due to inactivity will lower the average age of your accounts. Credit scoring models look at the average age of your credit accounts, as in the credit world, old and wise trumps shiny and new. If you have 2 credit accounts and you opened the one 10 years ago and the other 4 years ago, the average age of your accounts is 7 years. If the account that was opened 10 years ago gets closed due to inactivity, this will seriously decrease the average age of your accounts and it will affect your credit score.

In short, paying off your credit accounts every month so that there is a zero balance is a good thing; but having a zero balance on an account due to inactivity is a bad thing and this could affect your credit score. Rather use the account for small purchases so that you can keep it active.

What can I do about the high overdue balance levels on my accounts?

Having an overdue balance on a credit account can have more consequences than you’ve possibly considered. If you’ve recently had an increase in late payments it is something that is quicker to rectify. However, if you have a high overdue balance on accounts, you need to remember that a fee is added to the amount you owe, as well as an increase in your interest rate. The longer you have an outstanding payment, the harder and more expensive it becomes to pay back. Your credit report will also take a hit the longer the balance goes unpaid and this can affect your ability to secure credit in the future.

 

What if I have a increase in overdue balance levels?

Credit providers will usually wait about 30 days after the late payment deadline to report the late payment to the credit bureaus. This means that if you’re able to make the payment within 30 days of being late, this will unlikely affect your credit score. After about 2 months of a payment being late, the credit provider can increase the interest rate to a penalty rate.

What happens if I have high overdue balance levels?

If you have a few accounts with high overdue balances this will affect your credit score. If your accounts haven’t been paid for 6 months, your account will be charged off. To avoid a charge off, you need to pay the full minimum payment owed. A charge off will be added to your credit report and it will remain there for up to 7 years, even if you settle the payments due. However, this doesn’t mean that you shouldn’t pay your charge off balance, as once you do, the status in your credit report will change to indicate that the balance was settled.

What can I do to rectify an overdue balance?

To bounce back from an overdue payment, there are a few things that you need to do. Firstly, you need settle the delinquent balance on your accounts. This may take you some time, but you should try and pay back a little more each week. For example, if you’re meant to be paying R100 towards your weekly repayment, pay R120 if you’re able to. This will help you to reduce your delinquent level every week until you’ve paid in full. Secondly, you should make on-time payments with all your other credit accounts. Lastly, you will need to be patient. As the overdue balances are cleared and more time goes by, there will be less of an impact on your credit score.

How do I improve my credit utilization on accounts?

In simple terms, your credit utilization refers to how much of your available credit you use. Your credit utilization is represented as a percentage and the less available credit you use, the better. A rule of thumb is that you should not exceed a 30% credit utilization ratio on any of credit accounts.

 

To work out your credit utilization ration, you divide your overall balances by your total credit limit and multiply that by 100. For example, if your balance is R20 000 and your credit limit is R45 000 then your credit utilization ratio would be 44,44%, which is too high.

 

here are a few things that you can do to improve your credit utilization:

1. Keep tabs on your spend
You should try to keep an accurate account of how much you are charging to each card. It’s best to get into the habit of checking where you are using each card and what for. If you are approaching the 30% threshold, then you need to make a payment to that card. A good rule of thumb is to create a list of your cards and their limits. You can then work out what you would need to spend to reach the 30% utilization ratio. You then know that you shouldn’t spend above a certain amount on each card.

2. Don’t get caught out, set a balance alert
You can call you credit provider and sign up to receive balance alerts. This will help you to know if you are getting close to your 30% threshold. It’s best to try and set a balance alert for lower than 30%, so that you don’t surpass the threshold because of a large payment.

3. Make credit repayments twice a month
If you’re able to, pay your bills every two weeks, rather than just once a month. Your credit score will improve, as you are lowering your credit utilization. You can set up automatic repayments on your cards and by halving the time between your payments, you’re less likely to go above the 30% utilization.

What do I do if I have too few mature accounts with a good payment history?

What this means is that out of all your credit accounts, you do not have a lot of well-established credit accounts that have a positive payment history. You need to remember that when it comes to credit scoring, the age and positive consistency of your credit accounts is key.

Generally, the longer you’ve had a credit history, the better it is or your score. However, it is far better to have a long history of good credit payments, than it is to have a long history of average credit payments.

 

Is maturity of credit accounts a big factor that impacts credit score?

The length of your credit history and age of accounts is not a massive factor when it comes to the makeup of your credit score. It is; however, a good way for creditors to see how you have managed your credit in the past and it can be a way for them to determine whether you’re a safe bet to loan money to in the future. It is possible for someone with a fairly new payment history to score better than someone with a mature credit history. At the end of the day, it boils down to how you consistently manage your credit.

What components are used to determine credit history?

  1. It will look at how long your credit accounts have been opened.
  2. It will then look at how long your specific types of credit accounts have been opened. For example, you may have had a credit card for 5 years, but a personal loan or only a couple of months.
  3. A consideration will also be to look at when last your specific credit accounts were used.

How do you build mature credit accounts with a good payment history?

Firstly, Rome wasn’t built in a day and unfortunately it will take time for your credit accounts to mature. In fact, if you are completely new to the credit world, it can take months for a credit score to be generated for you. It’s very important that you start with and maintain a good credit repayment plan, as this will have a big impact on your credit score.

Closing a credit account will also have an impact on your credit score. If you close an account, it will be removed from your credit reports and it won’t be used in the calculation anymore. This will bring down the average age of all your credit accounts. If you do keep all your credit accounts open, you need to make sure that you are paying them on time and that you are keeping your credit utilization below 30%, you can learn more about credit utilization here.

You will see that if you are consistently making payments on your different credit accounts, that your credit will mature like a fine red wine and your credit score will get better and better.

How can I improve my payment history on accounts?

Did you know that you can significantly improve your credit score if you make your credit repayments on time? Although a person’s payment history can have a few confusing elements, if you never miss a payment your credit score should be consistently higher than average.

 

Here are a few elements that determine your payment history

  1. It will look at whether you have any adverse actions on any of your credit accounts, such as defaults, judgements, bankruptcies etc.
  2. It will look at your payment information on your different types of credit accounts. An example of this may be that you have a very positive payment history when it comes to your loans and credit cards, but you may have some missed payments on a retail account.
  3. It will look at how overdue any of your late payments are.
  4. It will look at how much you have outstanding on any of your credit accounts.
  5. It will calculate the total number of late items that are listed on your credit report.
  6. It will also look at your positive payment history and how many accounts you are paying as arranged.

As you can see, there are quite a lot of factors that determine your payment history and payment behaviour. However, the simplest way to ensure that you have a good payment history is to keep track of your different credit accounts, your repayment dates for each of these accounts and how much you need to be repaying on each of these dates.

How to build a solid credit history

  • Don’t apply for too much credit. You need to be picky with your credit applications and make sure that you take care of your existing accounts. Pay your accounts on time and have reasonable credit card balances.
  • To start building credit, you should try stay away from credit cards that come with a whole lot of charges. There are good cards with minimal fees and they are great ways for you to start building your credit history. Why not apply for a Virgin Money credit card here.
  • Make sure that you use the credit. Some credit scoring tools cannot produce a credit score if it’s been a while since your credit reporters have given information to the bureaus. You should look to making small monthly purchases, but then make sure that you pay this off right away. It will take some time for your credit history to build, but if you make these small, regular purchases you will begin to see the results.
  • Be on time with your credit card payments. One of the best ways of creating and maintaining a good credit history is to ensure that you make your credit card payments on time. With a Virgin Money credit card, you can set an automatic payment for an amount that you select. This will help to make sure that you’re not accidentally missing a payment.

What do I do about an arrears level on my accounts?

If your credit report shows that you have an arrears level on accounts, this means that you have missed payments on a credit facility and you are in arrears by the total that you haven’t paid. Fortunately, if you are in arrears it means that no legal action has been taken against you, yet.

 

How long will my arrears level remain on my credit report?

It’s very important to understand that even once you have paid off the amount outstanding to your creditor, the information will remain on your credit report for up to 5 years. You should still ensure that your credit provider informs the credit bureau that you have paid off the amount outstanding.

What if i only have a recent arrears level or an arrears level on a recently opened account?

If you have a recent arrears level on selected accounts, you should be able to approach your credit provider directly so that you can come to an arrangement with regards to settling your outstanding payments. Going forward, you need to ensure that you are making your credit payments on time. If you feel that you’re at risk of missing a payment, a deferment may be something to consider. A deferment on a credit payment is a plan where you and the credit provider have agreed to a postponed payment. If you are at risk of defaulting on a credit payment, you should get into contact with the credit provider and investigate a deferment before the default happens.

What if I have a high arrears level?

A high arrears level is going to affect your credit rating. You need to remember that it will also affect your ability to get further credit in the future. The easiest and most effective way of clearing your outstanding balance is to try and pay back a little more each week. For example, if you’re meant to be paying R100 towards your weekly repayment, pay R120 if you’re able to. This will help you to reduce your arrears level every week until you’ve paid your current loans in full. There is no reason why you shouldn’t be able lend money from a credit provider in the future. You just need to demonstrate that you can responsibly repay your loans.

What does it mean if the time certain accounts have been opened indicates high risk?

In short, this means that you have been flagged as a high risk to lend to, due to the timing of when you applied for new credit. When you shop around and apply for new credit, a hard enquiry is done on your credit report. It’s also important to note that you could be flagged as a high risk depending on the time that you apply for specific credit accounts.

 

How does the time of opening credit accounts affect my credit score?

If you do not have a long credit history, opening several new credit accounts can indicate a higher risk. Because of this, your credit score could take a hit. If you are applying for new credit, this could be an indication that you are in desperate need of credit. How your credit score is calculated considers a range of factors and how you shop around for credit is one of these factors. If you check your own credit score, this will be a soft enquiry and it will not affect your credit score. However, whenever you apply for a new line of credit, credit providers will do a look up on you and this is a hard enquiry. Hard enquiries do affect your credit score. If you are applying for new accounts too rapidly, your credit score will decrease significantly.

What if I have been successfully granted the new credit accounts?

Even if you are accepted for a new line of credit, your credit score can be affected. This is because your credit report also considers how many new credit accounts that you have by type of account. For example, your credit report may indicate that you have new credit cards. This could position you as a higher risk. You need to remember that opening new accounts will also affect your average account age and this is a factor that is used to calculate your credit score.

What do I do if all my accounts have a limited performance history?

Your credit report could indicate that all your credit accounts have a limited performance history or that you don’t have any mature active accounts. This means that you either have very few credit accounts and/or your credit accounts are relatively new. Just like Rome wasn’t built in a day, neither is a solid credit history. However, there are things that you can do to bulk up your credit file.

 

Steps to building a good credit history

  1. Don’t apply for too much credit. You need to be picky with your credit applications and make sure that you take care of your existing accounts. Pay your accounts on time and have reasonable credit card balances.
  2. In order to start building credit, you should try stay away from credit cards that come with a whole lot of charges. There are good cards with minimal fees and they are great ways for you to start building your credit history. Why not apply for a Virgin Money credit card here.
  3. Make sure that you use the credit. Some credit scoring tools cannot produce a credit score if it’s been a while since your credit reporters have given information to the bureaus. You should look to making small monthly purchases, but then make sure that you pay this off right away. It will take some time for your credit history to build, but if you make these small, regular purchases you will begin to see the results.
  4. Be on time with your credit card payments. One of the best ways of creating and maintaining a good credit history is to ensure that you make your credit card payments on time. With a Virgin Money credit card, you can set an automatic payment for an amount that you select. This will help to make sure that you’re not accidentally missing a payment.

How can I reduce the negative impact of a default on my credit report?

If you have a default on a credit payment, this basically means that you have not made your agreed upon payments to the credit provider. You need to remember that once a certain amount of time has elapsed, there will be a record of your non-payment and this will become a part of your credit history.

 

What if I defaulted on an account more than 12 months ago?

If your default payment was over a year ago and you have not paid in full, your missed payment will be earning interest. This means that the longer you put off the payment, the more you will have to pay. Also, the chances of the credit provider filing a judgement against you increases the longer you put off the payment. A judgement can stay on your credit report for five years and it will prohibit you from taking out more credit, so it’s best that you make the payment as soon as you’re able.

How long will a default stay on my credit report?

A default will remain on your credit report for up to two years. Your default status on your credit report will be removed once the default has been paid in full. Within 7 days of paying in full, the credit provider will update their information and inform the credit bureaus that you have paid up. After this, the credit bureau has 7 days to amend your credit report.

What if I am unable to pay this one repayment?

There is also a difference between a default and a deferment and going forward you should try to keep this in mind. A deferment on a credit payment is a plan where you and the credit provider have agreed to a postponed payment. If you are at risk of defaulting on a credit payment, you should get into contact with the credit provider and look into a deferment before the default happens. A deferment is a good indicator that you are still willing to make the payment; however, a default may indicate that you unable to make the payment at all.

What can I do to avoid a default?

To avoid defaulting on a payment in the future, you need to ensure that you are on time with your credit repayments. With most credit providers, you should be able to set an automatic payment for the amount that you select. This will help you make sure that you’re not accidentally missing a payment. If your credit provider does not allow you to set this automatic payment you should write down your payment deadlines and set reminders on your phone so that you are consistently paying your bills on time.