A pivotal step towards getting the best credit opportunities is by maintaining a good credit score. However, there are various things that can play a role in dropping your credit score if you are not careful.
But do not fear, in this blog we are going to explore exactly what determines a healthy credit score, specific things that can influence it, as well as the practical steps you can take to build a really strong credit score in South Africa.
A credit score is rated as a number between 000 and 999. In South Africa, most credit bureaus rate credit scores between 300 and 850. A low score is considered to be between 580 and 579, while a good credit score is usually over 700.
Remember this: The higher your credit score, the healthier your credit is and the lower your credit risk profile.
To better understand the concept of building a healthy credit score, consider the term ‘credit’ – which refers to the act of lending money from a financial institution that you will repay, with accumulated interest, over a predetermined period of time.
To access credit from a financial institution, you need a good credit score. Why? Because your credit score is the benchmark that lenders use to determine if you’ll be able to repay them, and decide whether they want to lend you money or not.
Consisting of your current employment status, age, credit history and spending habits, your credit report (which includes your credit score) provides lenders with a detailed summary of your overall credit risk profile.
If you believe your credit score may be on the low side, don’t panic because there are numerous ways you can grow your credit score, whether it is from scratch or in need of a boost. Here are some options:
As previously mentioned, your credit report and score are primarily determined by your spending habits and credit history. Missing payments can have negative consequences on your risk status and credit score.
Accumulating too much debt too quickly not only increases your chances of falling into debt but also reflects badly on your credit history. By maintaining a balanced combination of unsecured credit (credit cards or personal loans) and secured credit (car payments or a mortgage), you can build a robust credit history as long as you do not overdo it.
It is important that you continuously monitor the status of your credit score. This being said, also keep an eye on your credit accounts in case of inaccuracies or fraudulent activity. If you flag any suspicious activity or incorrect information on your account, report it to your creditor as soon as possible.
In your journey to develop a healthier credit score, make sure to take the timeline of your credit accounts into consideration. This means the age of your latest credit account and oldest credit account – from the time you applied for them to the time you closed them. To put it succinctly, the longer your credit history is, the higher your credit score will most likely be. Keep this in mind when considering whether you should close an account or not.
Just like knowing how long your credit account history spans, it is also necessary to know how many times you have applied for new credit and closed credit accounts. Too many simultaneous applications for credit may indicate to lenders that your financial circumstances have drastically changed or there may be an unsavoury reason your applications are being denied.
With an informed and disciplined approach to credit, the benefits of having a healthy credit score are endless. We hope this blog has highlighted the potential pitfalls you may encounter when trying to achieve a good credit score, as well as the practical steps you can take to stay creditworthy and debt-free.
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Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.