Your credit score is a way for lenders to get a sense of who you are as a consumer, as a spender, or how you tackle debts and loans. You essentially get labeled with a ‘number,’ which is your credit score, which can vary from poor to excellent, and when applying for new loans, credit cards or bank accounts, you’ll want to be on the latter end of this scale in order to make that important first impression, and of course, get the financial product you are after.
Your credit score is also based on factors such as the length of your credit history, (so younger people may find they have low scores, frustratingly,) the types of credit you have (mortgage, payday loans, overdrafts, etc.,) and how often you apply for new credit (if you are always applying for new financial products, this does not look good.)
Everyone can check his or her credit score online. According to American news, nearly 4 in 10 "Have no idea" how credit scores work. Could this be the same in South Africa?
How do credit scores work?
Online loan provider Wonga published a blog all about the importance of knowing how credit scores work and how little some of us know about what impact this low credit score can have on future purchases or financial moves. They say that if you have a flat credit score, your choices may be restricted in terms of loans or bank accounts, but this does not imply you can’t certainly qualify for a loan if you need one. Some lenders offer loans for bad credit. Wonga, however, will only accept your credit request if they think you can return your debt. A less reputable provider may not do this – so check you are always using a reliable and approved firm. They say, “If you have a flat credit score or have suffered hardship in paying loans in history, it might be a great plan to move behind and take a different aspect at your investments.”
Improve your Financial Outlook by Controlling Credit Score:
Optimistically, Wonga says there are ways you can take control of your credit score and improve your financial outlook if you find yourself in a position where you do not qualify for a loan or product that you need. This includes,
- Paying your bills on time – this includes rent, energy bills, car loans, etc.
- Paying the full amount that is owed each month on your account, and not defaulting on any payments. Try to overpay if you can!
- Ensure that you can afford the minimum repayments on any loans you take out- this includes doing your research thoroughly before applying for any loan or overdraft.
- Try not to use more than 30% of your existing credit facilities.
And what is great is that making changes right now can have an impact on your credit score just two months down the line. You don’t have to wait a whole year to see what effects it is having. You can register for a loan score website and check back in regularly on how your score is improving. These loan score websites are sometimes free or a minimal cost and are so useful in getting to grips with your finances.
It is wise to embrace this task when you foresee something happening in the future that may require you to rely on your credit score – say for instance, if you plan on moving house. Your lender or landlord will check your credit score and so you may want to take steps to improve it months in advance. Being on top of your credit score, and taking control of your finances, is a great New Year Resolution – and possibly one of the most beneficial resolutions that you could tackle. Start 2020 with a clean slate and a good financial situation, and you’ll find yourself living a more comfortable and financially stress-free life.