Money

What’s the Importance of Your Credit Score?

Story Highlights

  • Checking your credit score
  • Calculating your credit score
  • Too many credit score requests
  • Your credit score history
  • Using too much credit

The first thing a bank will do when you apply for a home loan is to check your financial history and your credit score.

This is the most important indicator that will help the bank determine whether you are eligible to take up the responsibility of a loan.

In order to access any form of credit, especially home loans, your credit score pretty much has to be excellent. This is based on your history of payment on all previous and current accounts as well as the percentage of credit that is already being used.

Checking your credit score

Checking credit scores is the easiest way for financial institutions to find out if you are responsible when it comes to paying back loans, be it a home loan, personal loan, or motor vehicle financing.

It is a practice that is so widely used yet a large percentage of South Africans don’t know what their credit scores are and they have no idea what type of factors influence it.

This often leads to misinformed choices and wrong financial decisions which in turn leads to many people not being able to become approved for a loan of any sort.

Calculating your credit score

Different credit bureaus in South Africa have different ways of calculating your credit score but in general, the scores range from between 350 to 999.

Experts have noted that the ideal score you should be aiming for is a score of 600 and above. Reaching this level means that you should have no problem being approved for a loan, having said that you are able to meet the monthly payments.

The higher your score is, the bigger the chances of negotiation of interest rates will be. This can save you hundreds of Rands, if not thousands, per month and many, many thousands in the long-term span of your investment.

This is why many people are disappointed when they are declined upon applying for a loan.

Luckily, there are easy ways to fix it:

Too many credit score requests

One of the first problems might be that there have been too many inquiries made into your credit score.

Even though it does pay to shop around before taking out a loan, but please keep in mind that every time you ask for a quote, the lender will want to see your credit record.

If your requests are spread over more than a few days, each inquiry will be logged separately, creating the image that you are applying for several different forms of credit.

Avoid taking out any other loans during this period, as well.

Even though it does pay to shop around before taking out a loan, but please keep in mind that every time you ask for a quote, the lender will want to see your credit record.

If your requests are spread over more than a few days, each inquiry will be logged separately, creating the image that you are applying for several different forms of credit.

Avoid taking out any other loans during this period, as well.

Your credit score history

Furthermore, your past could be playing catch-up with you and ruin your credit score!

Often prospective borrowers have black marks against their credit scores from years ago and they forgot to rectify this. This could be something simple like an old bank account that you forgot to close and the monthly fees are just adding up as the years go by.

Borrowers have found that they had a debt judgment against them that they paid off but it wasn’t clear. Something as simple as the wrong ID-number could also have a serious impact on your credit score as well.

Needless to say that it’s important to check your credit record at least once a year!

Using too much credit

Lastly, you can be penalized for using your credit too much.

Your score will be lowered if you, for example, max out your credit card every month, even if you pay the balance on time. The point of importance here is how much credit you have available and how much of it you are using.

Try to keep the balances as low as possible.

The other side of the coin is also true: not using any credit at all can reflect no sign of credit which doesn’t give any proof that you are a responsible consumer.

In parting, here’s one tip of advice: in order to build credit, try to maintain at least one active account and make regular payments.

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Xavier De Buck

Real Estate Agent Keller Williams Realty | Social Media Junkie | Content Curator | Early Adopter | Proud Husband & Father

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