Building a healthy credit score needs a good credit history
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When applying for finance to purchase an item such as a car, the one thing that will always get checked is credit score status.
A credit score is determined by credit history and the 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 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 in the event that your loan application gets approved,” Kutlwano Mogatusi, communication specialist at WesBank Motor, said.
However, if you have recently graduated and are entering the workplace for the first time, you probably won’t have a credit history because you might not have opened a credit card or retail store account card.
Living debt-free especially in the current economic climate is a good thing, but ironically it can also impact negatively on your credit score.
Here’s how to build a good credit score if you have never applied for credit:
- Always pay your bills on time and pay at least the minimum amount owing. This could be your monthly electricity payments or a cell phone contract.
- If you have a retail store account card or a credit card, you can use these cards to make small purchases, but it is important to repay the minimum amount owing 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.
“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,” Mogatusi concluded.