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Knowing your credit rating has become a financial imperative, given the cost of living in and people’s increasing dependence on credit.

Providing an insight to credit scores and their importance, Al Baraka Bank credit manager Ebrahim Hoosen says: “A credit rating is more than a qualifying guide for finance. Many companies and even prospective employers can and will review your credit rating before providing you with services or offering you employment.

“Developing a sound credit status takes time, active management and does not provide for a quick fix at the time of submitting a credit application.”

A credit score is a numeric grade, or indicator by which consumers are rated by credit bureaus. These scores reflect your creditworthiness and are based on the individual’s credit history, taking into account defaults on payments, one’s level of credit and judgments against your name.

“In essence, the higher your credit score, the more creditworthy you are deemed to be, and you will, accordingly, enjoy a better chance of obtaining credit and preferential terms. Importantly, however, credit score bands differ between the various credit bureaus,” Hoosen says.

Securing your credit score online is easy, with credit bureaus affording consumers one free credit check report a year.

Hoosen said the correct interpretation of a credit score was vital. “A credit score, based on one bureau’s band of 500 to 600, would be viewed as weak by most credit providers, resulting in their perception of the individual as high risk. In such an instance, your credit application would likely be declined, or the credit provider might consider charging a higher rate to compensate for the risk.

“An average risk for credit providers would be in the band 611 to 628, with credit being extended at a higher rate. A score of 629 to 730 is considered low risk and, based upon your credit history, you will be likely to receive approval for credit at higher amounts and with preferential rates and terms,” Hoosen explained.

He stressed, however, that a low credit score was not always the result of a poor credit history.

“This may be the consequence of a lack of credit on your name. Most people entering the job market for the first time will experience a low credit, given their lack of a credit history,” he said.

“An often-asked question is how credit bureaus obtain people’s personal credit information without their consent,” says Hoosen.

“The National Credit Regulator has deemed it compulsory for all registered credit providers using consumer credit data to share their customers’ payment information with credit bureaus.”

Financial institutions utilise the National Credit Act to assess consumer finance applications.

“Key indicators utilised by financial institutions to ensure affordability include one’s credit score and credit report. The credit score will provide a good indication as to whether the applicant can afford the repayments, while the credit report will detail information about the applicant’s current credit status.” 

PERSONAL FINANCE