The use of credit cannot be avoided. Though it is possible to live sensibly and economically by paying for most expenses with cash, limiting your number of credit cards and clothing accounts, the fact is that credit may be required at some point in a person’s life.
At one stage or another, you will most likely find yourself applying for some form of credit – be it a loan for a car or a mortgage for a home,all assets that help us build a life. Whether or not you are granted the loan depends on the rating of one of the most important documents of your adult life – your credit report. (A detailed account of your credit history, compiled by various credit bureaus that monitor your financial behaviour on each of your credit accounts)
Whenever you borrow money from a recognised financial institution, you promise and are obligated to repay the money within an agreed time. If you do, your credit report rating or score will be good, increasing your chances of securing further credit should you need it in the future. Not only is it more likely that your applications for credit will be approved, but a good credit score can also save you money by lowering interest rates on the money you borrow.
On the other hand, if you fail to repay your debts or pay late, the credit bureaus will certainly notice; resulting in a bad credit score, which, of course, lowers your chances of receiving credit, or at least increases the interest rates you will pay.
Theunis Kruger, head of unsecured lending at Standard Bank, offers six tips to keep your credit rating clean:
- Check your credit report regularly – you should often check that your report is up to date and accurate. This can be obtained free of charge once a year from a credit bureau.
- Pay the correct amount on your loan/debt on time.
- Do not overstretch yourself with credit – always make sure you can repay the instalments of the credit you take on.
- Don’t ignore your bills – if you are struggling to repay debt, call your creditor to make arrangements.
- Keep your outstanding debt as low as possible – frequently utilising your credit close to your limit is viewed poorly by the bureaus.
- A credit profile is not built overnight. It’s better to provide creditors with a longer time frame to review – a longer history of good credit is favoured over a shorter period of good history.
By establishing and maintaining a good credit rating, you’ll be able to borrow money when you want it, at the most favourable terms from your financial situation, advises Theunis. Take time to find out what your credit score is, what it means and how you can improve it if needed. It may seem tedious, but it’s a step in the right direction to securing a successful financial future.