• Fresh graduates may find it difficult to apply for vehicle finance.
• Wesbank offers graduates who entered the workforce an opportunity at vehicle finance without a credit history.
• Wesbank shares vital information on how one can improve your credit score.
• For more motoring stories, go to Wheels24
When you apply for finance to purchase a big-ticket item such as a car, the one thing that will always get checked by the finance house is the status of your credit score. Your credit score is determined by your credit history and your ability to pay back loans on time. It directly affects the amount of credit a finance house will lend you, as well as the interest rate you will be offered.
In short, a good credit score means you are more likely to get a better deal on a bank loan. Having a poor credit score will indicate to the bank that you are potentially a high-risk customer, which may result in you being offered a higher-than-average interest rate on a loan, and possibly even a limited loan amount. That is if your loan application gets approved.
However, suppose you have recently graduated and are entering the workplace for the first time. In that case, you probably won't have a credit history because you may not yet have applied for finance, opened a credit card or retail store account card, or borrowed money, although you may be paying off your student loan. Living debt-free, especially in the current economic climate, is a good thing, but ironically, it can negatively impact your credit score.
Building a good credit score
So how do you build a good credit score if you have never applied for credit? The answer is simple, and there are a few ways you can do this.
Firstly, always pay your bills on time and spend at least the minimum amount owing. These could be your monthly electricity and water payments or a cell phone contract.
If you have a retail store account card or a credit card, you can use them to make small purchases, but it is essential to repay the minimum amount owed on each card at the end of the month. A credit card can help you build credit if you use it responsibly - it gives you the benefit to buy now and pay later, demonstrating your ability to manage your debt versus income within your budget.
Opening a bank account and managing it effectively is also a good indicator of your financial responsibility, and this can also count towards establishing a good credit history.
While you need credit to build credit, it's also important not to rush the process. Making several credit applications in a short period of time, for example, could do more harm than good for your credit building efforts, as it may appear that you are taking on too much debt.
Meeting the relevant criteria
So, what if you want to buy your first car and you don't have a credit history, you may ask? At Wesbank, our Graduate Finance product guides young professionals through the sometimes complex task of vehicle ownership by making it more straightforward for the individual. This includes assisting first-time car buyers applying for vehicle finance without a credit score. For us, a credit history is not essential if you meet the relevant criteria.
These criteria include:
- Graduating with a degree or diploma obtained in the past three years
- Being under 31 years of age
- Being employed in a full-time job or have a letter of appointment to a full-time job that pays a minimum monthly salary of R10 000
- Being able to afford the monthly payments for your car
Using the WesBank online affordability calculator takes the stress and hassle out of this calculation, as we can let you know in an instant whether your pocket can afford the car you have your eye on. If it can, you are then in a good position to start the process of applying for finance to purchase your first car.
Building a good credit score will take time, but there's no time like the present to start practising sound financial habits. These could help you reap the benefits of a healthy credit score in the future when you apply for credit products and potentially earn yourself a lower interest rate on a loan. Remember that a good credit rating can lead to more financial freedom and help you save money while achieving your life goals.
Kutlwano Mogatusi is the Communication Specialist at WesBank Motor.