Oran Hall | Building a better credit score

QUESTION: I read your column in The Gleaner about credit scores and I am interested in advice pertaining to building a better credit score for 2019, but I lack guidance.

Personal Adviser:

Your correspondence suggests that you do have a credit score, which means that you have already assumed a debt - a mortgage, a loan from the Students' Loan Bureau, a loan from a financial institution, credit card debt or an overdraft at the bank, for example.

In such a situation, you should ensure that you pay the principal and interest due in full at the contracted times.

If you have not been servicing your debts at an acceptable level, I suggest you correct that situation now. Pay all arrears and any charges springing from the delinquency.

Beyond that, if you have a credit card, maintain a reasonable balance. Do not use your card to its upper limit. Avoid having too many cards, make note of the date payment is due and make every effort to pay off all balances when due.

Avoid a situation in which you pay just the minimum sum required. Before long, such a situation can get out of hand as interest balloons and causes the balance to increase. If you are only able to pay the minimum payment, it is not rocket science to conclude that you are in serious trouble. This is a clear sign that you have overextended yourself.

Stay clear of guaranteeing other people's loans because you risk hurting your own credit rating if the borrower does not service the debt satisfactorily. Keep in mind that the loans you guarantee are included in your credit history.

Manage your own indebtedness. Limit the amount of loans that you assume. Keep a close eye on your capacity to service your debt by monitoring your debt to income ratio. Go beyond that. Take note of all of your obligations and, after analysing them in relation to your net income, determine what portion of your income you can reasonably apply to service debt before taking on more debt.

Emergency fund

Do not forget to save and to maintain an emergency fund to reduce the need to borrow for unplanned events.

Be clear in your mind what your priorities are. Do not embrace every opportunity to borrow even if financial institutions offer you pre-authorised facilities. In the end, you are responsible for paying such debts and you cannot use as an excuse the fact that it was the financial institution which took the initiative to offer the loan.

Stay clear of borrowing for consumer items. Borrow to enhance your capacity to increase your wealth - education, for example. If you must, borrow to acquire personal long-term assets if necessary. If possible, slow down the pace at which you acquire such assets.

If you must borrow, tread cautiously and do your research. Look for the best rates and the best terms.

If you have to choose between an overdraft facility and a credit card, choose the overdraft. The way interest is calculated is more favourable to the borrower. If you must borrow and have assets that can be used to secure the loan, it is better to take a secured loan because the interest rate is generally lower.

Remember that your transactions remain on your record for seven years and, therefore, affect your credit score for that time. It is important to maintain your creditworthiness for a very long time because it has a strong bearing on your ability to borrow and, ultimately, the interest rate you are able to borrow at.

To be better able to monitor your credit score, you can request a copy of your report each calendar year at no cost, and additional reports at a charge of $1,000 plus GCT, or $1,500 plus GCT for each additional report, depending on the credit bureau from which you request it.

Additionally, do the following to help maintain or improve your score: check your accounts for errors, sort out any errors on your account, set up payment reminders, open new credit accounts responsibly, avoid closing out old credit card accounts, if possible, as the long credit history they carry can be helpful to your score if they have been serviced well.

- Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email finviser.jm@gmail.com