What is a good credit score and what influences it?


Meet Paul, a 23-year-old graduate who has just landed his first job and is looking to buy his first car.

This is pretty much where Paul hits the wall because as a recent graduate, and even as a salaried person, he has no background in credit management, and therefore has no credit management background. credit score.

Credit providers will typically use your credit score to determine what type of lender you are and how risky you are in terms of paying off a loan or credit – which is why maintaining a good Credit score – once you have one – is so vital, says Shapiro Shaik Defries and Associates.

Your credit score is based on how well you manage your debt and your repayment responsibility, including whether you consistently pay on time and at least the minimum payment due.

If you have a nonexistent credit score, it is likely that a lender will deny your loan / credit application because they have no history on which to base their risk assessment of whether you are a good payer or not.

How do I establish and develop my credit rating?

According to Gareth Levinsohn, business manager of SSDA, it takes about 12 to 18 months to build a meaningful credit report, and you’ll need some sort of retail, cell, or store credit account – with or without interest – to start this process.

“As a rule of thumb, start with a very manageable interest-free credit facility that you can easily afford, and instead of paying cash, buy something using that facility. Make sure you make all of your installment payments on time each month and pay the minimum amount required or more each time.

“A cell phone contract or a retail store account are good options. The condition is that you have to be able to afford the repayments and that you pay consistently – the goal is to demonstrate your maturity and responsibility when it comes to managing your credit, ”Levinsohn said.

Why Is It Important To Build Your Credit Score?

“As much as you hear the adage that ‘money is king’ – and which is a good currency to follow for consumer-style purchases – there are many big-ticket items that very few people can afford to buy at home. cash. Think: property, car, large appliances, higher education, etc.

“Most people will need a credit facility to afford these purchases, especially considering that a house will take you about 20 years to pay off and a car about 5 years or more.

“Your credit rating and past credit behavior play a fundamental role in qualifying for such loans and will also define the terms and interest rates for which you are eligible – obviously the better your credit rating is, which means a lower risk profile for the lender, the better the terms and interest rates you can expect to receive, ”Levinsohn said.

What is a good credit score?

Credit scores are generally rated on a scale of 0 to 1000 as follows:

  • 767 – 999: Excellent
  • 681 – 766: Good
  • 614 – 680: Favorable
  • 583 – 613: Medium
  • 527 – 582: below average
  • 487 – 526: Unfavorable
  • 0 – 486: poor

Your credit score is calculated by a credit bureau using all of your credit profile details, with your score reflecting a summary of all your financial decisions and behaviors as you begin to transact with various banks, credit providers, retailers. , etc., noted SSDA.

Length of credit history – it takes six years to calculate your credit score, so a shorter credit history than that will lower your score. Likewise, that means any history of missed or late payments will also persist for six years, he said.

What factors influence your credit score?

  • Missing or late payments will negatively affect your credit score. Even if you double the payments the next month to catch up, the inconsistent payments will show up. The same goes for “adverse legal information” – although this information is erased as soon as the account is settled, the negative repayment history remains on your profile for a number of years.
  • Multiple credit requests and high credit utilization – a sudden increase in credit requests over a short period of time will highlight your credit profile, as will use of the consistently high credit limit. Try to limit your consumption to less than 50% and ideally 35% of your credit limit. Balances consistently close to your limit suggest that you are living on credit to get by. Any loan request will be considered for up to two years.
  • If you have a number of unused credit facilities, consider closing some of them. Having a lot of unused credit can lead to a large debt balance if you decide to use them all at once.
  • A court judgment or “blacklist” will have a negative impact on your score.
  • Length of credit history – it takes six years to calculate your credit score, so a shorter credit history than that will lower your score. Likewise, this means that any history of missed or late payments will also persist for six years!
  • If you meet payment difficulties, be proactive and make arrangements with the credit provider. We may be living through a difficult pandemic period; However, the fact remains that your debt is not going to go away. Rather proactive approach and nnegotiate with creditors and lenders. If you are contacted by a collection agent, explain your situation so that they can work with you to find a solution or make other payment arrangements, if necessary. But don’t ignore the calls. Failure to respond from you will simply see it playing a role in the legal phase, which will become increasingly difficult and negatively impact your credit rating and future personal financial health. If you are in a real bind, consider a debt consolidation process where professionals can help and negotiate on your behalf and make sure you rehabilitate yourself and avoid legal action.
  • Regularly check your credit report through the various bureaus which provide a free annual credit report to consumers. Check that all the details are indeed correct – many cases of identity theft and fraud are detected this way and can have a serious impact on your credit score and financial health if left undetected. If your identity or passport documents are lost or stolen, report it to SA Fraud Prevention Services which will enter your details into its database to notify its members that your identity has been compromised and that they should take extra precautions when confirming your identity, including credit providers.
  • Improvements in your credit score will usually start showing up within three months of consistent behavior and your score should be updated accordingly. However, there really isn’t a set time frame for this and it’s usually determined by how long it takes you to reflect disciplined credit habits and reduce your debt and usage to healthier levels.
  • Serious credit impairments such as late payments, default judgments, insolvency, and lawsuits can remain on your credit report for up to 10 years.

“Considering how important your positive credit score is to your current and future financial security and well-being, there is every reason to adopt healthier credit behavior and management since opening your very first account and treating your credit score like the gold that it is, ”Levinsohn said. .

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