Your important questions answered about your credit score
In the first of a five-part series "Rethink credit, realise dreams", we look at the importance of knowing your credit score as the starting point in considering credit.
Just like how a doctor checks your blood pressure as part of a health check-up, the importance of knowing your credit score is just as valuable, in the first step to improve your financial health.
Why do you need a good credit score?
A good credit score will grant you access to credit and ensure you get the lowest interest rate possible. This credit can then be used to help you realise your dreams such as funding of education, investments when buying a house or a car.
"You can't manage what you can't measure, so knowing your credit health is the first step in taking responsibility for your financial well-being.
"Knowing your credit status (especially your monthly debt obligations) is the most significant aspect of your credit health. It is not about how much you earn but rather about how you spend it," says Clark Gardner, CEO of Summit Financial Partners.
Here's a short guide to your credit report.
First, things first: What's a credit report?
A credit report is a historical analysis of your credit history. It contains detailed information regarding your past and current "credit behaviour". This includes a
record of any credit agreements you currently have or have had in the past, including the initial amount of credit, the monthly amount due, the date payment
was received and the amount outstanding.
If your accounts are in arrears or have been in the past (including the amount, time period, and whether you defaulted or a judgement has been issued against you), this will all appear on a credit report. Equally, accounts paid on time will be reflected as a positive credit behaviour.
This information is then input into a mathematical formula, taking all positive and negative information into account, to generate a credit score.
Note: Records are kept on file by credit bureaus for a maximum of five years following a settlement.
Credit Score LifeHack #1:
Set up recurring monthly payments on your bank's app to ensure you don't miss any payments as this could affect your credit report.
Why is a credit report important?
Your credit report affects multiple areas of your life. Credit reports are frequently used by companies or recruitment agencies when considering job applicants, as well as by letting agents or landlords to consider you as a good tenant. In addition, when you apply for a loan, bond, credit card, vehicle financing, store charge card, or any other form of credit, the company providing the credit will request and evaluate your credit report.
The importance of maintaining a healthy credit report cannot be understated. For example, when negotiating the interest rate on a car loan, having a report in good standing will give you more negotiating power and can result in more favourable interest rates on what you pay to borrow money. It's therefore important to know your credit score and to check it regularly to determine any trends or errors in the information.
Credit Score LifeHack #2:
Credit Score LifeHack #3:
Where can I get my free credit report?
The following are three online resources providing free credit scores:
Credit Score LifeHack #4:
If you have a poor credit score, the organisations mentioned above, provide guidance and tips to help improve it.
What do I need to provide in order to obtain a credit report?
Typically, you will be asked for basic information such as your full name, date of birth, ID number, current address, gender and marital status. Details about your employment status will also need to be inputted.
What's included in my credit score?
Your credit report typically includes information about any defaults, judgement, notices and other inquiries relating to your credit behavior, including debt
counselling. It also includes a list of known residential, business and mobile telephone numbers on record, where you have lived and details about current and previous employers.
Credit Score LifeHack #5:
Having credit facilities that you are not using can negatively affect your credit score. Ensure that you regularly make use of your
credit facilities, paying them back as per the repayment agreement.
Who is allowed to view my credit report?
No one may view your credit report without your consent. When applying for credit, you will generally sign a form giving the credit grantor permission to view
your credit reports. The same applies to job applications, rental applications or any other instance in which a credit report is required.