Credit is a powerful financial tool that allows people to make the big purchases such as a car or a house.
Warren Tromp, Executive for Product Development at Nedbank said that to get credit people need to have a good credit score.
Banks and other responsible lenders will use your credit score to assess your risk profile or how likely will you repay your loan within the agreed parameters.
Every time a person misses a credit payment or makes a late payment then it gets noted on their credit score.
“A consumer’s credit profile gives lenders a good idea of how well you have managed your credit in the past. The better your score is, the more likely you will get credit, as it shows that you have been managing your debt well,” Tromp said.
The difference between good debt and bad debt
‘Good’ debt allows an individual to manage their finances more effectively, to buy things they need or to handle unforeseen emergencies, or to acquire larger and more capital-intensive assets, such as property.
Good debt can be taking out a bond for a home, buying things on credit that save time and money or investing in yourself by borrowing to further education.
‘Bad’ debt is an amount of money that has little or no prospect of being repaid timeously or puts financial stress on the borrower who is unable to repay it as originally agreed.
Bad debt can be credit cards, personal loans, temporary loans, payday/cash advanced loans or retail store/clothing accounts.
Here are a few tips, to help you build a credit profile:
– If you take out credit, be sure that you can afford the repayments and keep up to date with them. If you are unable to keep up with payments then contact your creditor to see if you can extend the loan period so the repayments are manageable. “Alternatively, consolidate your loans into a single loan that’s easier to manage,” Tromp said.
– Sort out any court judgments against you for non-payment because judgments will have a negative impact on your credit score.
– If you keep your accounts up to date and you use less than half the credit available to you, then you will be seen as a person who is responsible, takes good money decisions and can be trusted.
– Only take out loans from registered credit providers so you will be protected by the National Credit Act. The National Credit Act prevents irresponsible lending, sets maximum interest rates, and ensures you will be fully briefed on all the costs upfront.
– Get affordable credit dealing with a responsible lender that way you will be sure the lender has properly assessed your ability to repay your monthly instalments.
– Regularly check your credit score to identify any errors or adverse marks so you can deal with them quickly. Identity theft can also occur and is often the cause of a poor credit score so regularly checking your credit score will soon reveal if your identity has been hacked.
Every South African has the right to a free credit report every 12 months from any credit bureau in the country as mandated by the National Credit Regulator (NCR) and the National Credit Act (NCA).
If you want your credit report, you can request it from any of the accredited credit bureaus in the country.
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