Life is expensive, and as prices of even basic goods soar many people are forced to turn to credit to put food on the table – let alone to buy the table. The trouble is our credit records aren’t good.
Many South Africans make heavy use of financial products such as loans and credit cards without thinking about the effect these products have on their credit scores. Indeed many people aren’t even aware that credit scores exist or that they have a knock-on effect on our future borrowing. And they remain blissfully ignorant until their bond application is turned down or a cellphone provider refuses to offer them a contract. It’s only then that the real effect of credit hits home.
So here are some tips to help you get to grips with your credit score and learn how to manage your debt responsibly:
How to get a good credit score
If your credit score is already low, it can take a long time to repair the damage and restore your record to a level lenders feel comfortable with. However, it’s not impossible.
DON’T MAX OUT
If you’re using a financial product such as a credit card, don’t push it to the limit each month. This can be a sign of reckless spending or unbalanced finances. Use no more than 75% to make your credit use appear more measured and responsible. And try to pay off debt rather than move it around.
PAY ON TIME
Certain credit score factors are more important than others and payment history is usually one of the top considerations in most credit-scoring models. This means you can positively influence your score by paying all your bills on time as agreed every month. Make this a priority.
LEAVE LOVE OUT OF IT
In the first flushes of love it can be tempting to dive in and join every part of your lives, including your finances. Unfortunately, if Mr or Miss Perfect has a less-than-perfect credit history it can mean big trouble for the other party, especially if your joint finances take a turn for the worse.
A flighty, risk-taking existence might sound exciting, but it’s no good for those looking to improve their credit scores. Regular changes of address or jobs can be considered signs of instability that can affect your rating.
KNOW YOUR SCORE
Knowledge is power. Even if the news is bad, knowing your credit score is important so that you’re aware of whether you need to change it. Companies such as Experian (experian.co.za) and TransUnion (transunion.co.za) offer free credit checks – just watch out for sneaky extra charges.
GET IT SORTED AND STAY THERE
Poor credit doesn’t have to haunt you forever. Older credit problems aren’t as important as new ones – they fade with time and recent good payments are reflected on your credit report.
WHY IS IT IMPORTANT?
Having a good credit rating will make a considerable difference in your life in both practical and financial terms. A good rating will mean you’re likely to be approved for most basic financial products, although you might not have access to special rates and high-level products (you’ll need a very good or excellent score for this).
By contrast, a poor or very poor rating will make it much more difficult to access credit products such as loans and bonds. This might mean you’ll need to put certain life plans on hold – perhaps you were thinking about getting finance to study further – and it might prevent you from purchasing a vehicle via a finance plan or getting a bond for a house. Even if you’re given a bond, a poor score will probably make it much more expensive. Poor credit scores can also affect your potential work.
Many employers conduct credit checks as part of their hiring process and if they see you aren’t financially responsible they might be hesitant to employ you.