The ins and outs of understanding your credit score
As a credit user in South Africa, understanding your credit score is of the utmost importance to your financial well-being. Whether a finance guru or the average Joe, knowing the ins and outs, good and bad, allows you to take control of your money and spend wisely to secure your future.
A credit score can be interpreted slightly differently from lender to lender, however one thing remains constant- the higher your score, the lower risk you are, the more chance you will get good rates and better deals. The score itself is derived from a number of factors, including your credit history, payment history, outstanding amounts, length of credit history, types of credit used and the amount of new credit requested. Once you know the composition, you can start on the road to understanding your credit score.
With a high score (above 720), you as a consumer are seen as a low risk user, this means that the creditor is less likely to lose out on their investment. Maintaining a high credit score is of the utmost importance, especially in this modern, credit run world we live in. Not only allowing for more credit, but also extended terms and rates, having a good credit record makes life just that much easier on a day to day basis. On the other end of the spectrum, having a low score (below 620) can have detrimental effects on your life and future plans. Hindering everything from personal loans to home loans, this makes dealing with credit an absolute nightmare. Struggling to use credit, for a number of possible reasons, this also puts the consumer at risk, sometimes forcing them to seek out unscrupulous characters in order to get money.
Understanding your credit score may seem complicated, but in essence it is quite simple- check yours today, every South African citizen is entitled to one free credit check a year. A credit score is pretty much your financial identification as far as creditors are concerned. Showing them who you are, what your spending habits are like and how likely you are to pay them back. If you keep it neat and presentable, much like presenting yourself, then you will come off well, as far as lenders are concerned.
A common misconception regarding credit, many think that the lack of credit use makes for a good score, however this is entirely wrong- you must use credit in order to have a score. When using credit you must ensure that all installments are paid on time and in the correct amounts, even paying more than the minimum if you can, these contribute to a good score and show you as a strong debtor and a sound investment.
If you have let your credit get away from you, letting your score slowly slip, you may be in need of some professional credit advice. Using credit as a half-way house for your money rather than your source of funds is key to making sure you can pay it all back and no become over-indebted.