MONEY CLINIC | I want to buy a house - how can I improve my credit score?

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A credit score is determined by several factors.
A credit score is determined by several factors.

A Fin24 reader wants to know the best way to improve her credit score in order to buy a house.

She writes:

I was in a lot of debt, and I have worked hard to pay it all off. However, my credit score is still low. I need to buy a house, but I need to improve my credit score to do so.

I currently do not have any accounts except for a contract phone. I have been trying to get a credit card so I will be able to improve my credit score, because I keep reading that it is the best way to improve the credit score, but it consistently gets declined because there is not enough info on my credit profile. I am now afraid of taking on more debt, especially clothing accounts.

Benay Sager, chief operating officer at DebtBustersresponds:  

Consumers often ask what the best methods are to improve credit scores. A credit score is determined by several factors, primarily how long the consumer has been credit active, the consumer’s payment record, what type of credit the consumer has, how much of their credit card (if they have) they are utilising, and a few other factors. While a higher credit score generally makes the consumer a more attractive lending prospect, it is not always easy to know what a high credit score is.

More interestingly, high credit scores sometimes are driven by the fact that consumers – in some cases those who can ill afford it – use their credit cards to such a high extent every month that their credit card "utilisation" is high. We do understand this consumer’s predicament, which is also shared by millions of young people: where does one start to build a credit history? 

The advice that is generally given is to start small: with an insurance product (such as cellphone insurance) or a retail credit account. It is also important to have a transactional banking account to show evidence of money management to potential lenders. Our advice to this consumer would be to follow this path, and start small. Get a cheque account in place and use it regularly for transactions.

When it comes to credit, if her aspiration is to buy a house, then do not accumulate a lot of unsecured debt that is expensive; rather borrow what (s)he can pay back at the end of the month or better yet save each month so that amount can be used towards a deposit for a house.

Questions may be edited for brevity and clarity.

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