Most people who work on their physical fitness want to get stronger and lose some weight. Financial fitness works in much the same way, especially when it comes to your credit score. A good credit score puts you in a strong position when you want to apply for credit, and it will also ‘thin down’ the stress that goes with applying for a loan. Here’s why:
A good credit score tells potential lenders that you are low-risk. It shows that you are not already struggling to pay back too much debt and that you make complete and timely payments every month. This makes it more likely that your application will be approved, and you may qualify to borrow higher amounts at lower interest rates, with easier payment terms.
Having a low credit score means that applications to responsible lenders may be rejected. Registered lenders comply with all the laws governing how much credit you can take on and what the terms of this credit should be. Without a responsible lender by your side, it may be tempting to turn to some version of a loan shark, which will charge incredibly high interest and give you only a short time in which to pay them back. In some cases in South Africa, the failure to pay a loan shark back could also lead to harassment.
Knowing that your credit score protects you from having to make questionable decisions, and having more certainty about the outcome of your application to a responsible lender, means that you will have less anxiety while applying and that you will likely only have to fill out one application… Saving you stress, time, and money.
So, what is a good credit score?
Well, the absolute best score you could have is 999, but very few people achieve this. A score of between 767 and 999 is considered ‘excellent’. Between 681 and 766 is ‘good’, and from 614 to 680 is still ‘favourable’. Scores that are lower than 614 are ‘average’, ‘below average’, ‘unfavourable’, and ‘poor’, depending on how low they are.
If you fall into the lower bands, it is unlikely that any lender or store will grant you any form of loan or credit.
But the good news is that there are many ways to improve your credit score, starting with paying all your bills in full and on time, every month. Budget to make extra payments into your credit card or personal loan. Do not let your bank account go into overdraft. Do not apply for multiple loans and credit cards at the same time, and do not apply for credit that is likely to be rejected.
If you do not have any debt to pay off but want to start building your credit score or profile, start with something small, like making use of a risk-and-interest free Buy Now Pay Later option like PayJustNow to fund your next retail purchase. Then, take out a cell phone contract or a store card that you know you can settle each month. Remember that discipline is key and you should resist the urge to start spending, even once you have opened something like a store account.
You can access your credit report for free once a year from each of the major credit bureaus: TransUnion, Experian, Compuscan, and XDS. Results may vary as different information may be taken into account but the important thing is to consistently make your score stronger.
* Seyuba, is the head of people at FinChoice.
PERSONAL FINANCE