To be able to access financial facilities, you’ll need to have a good credit history, whether you’re purchasing a large-ticket item for example, your first car or apartment, applying for a student loan, requesting a credit card from your bank, or simply switching from a pay-as-you-go cellphone plan to a contract.
According to Investec, a credit score is a summary number based on your credit report, which comprises details about your debt history, repayment history, age, and job status.
Most credit bureaus rate your credit score between 300 and 850:
- A low score is generally considered to be between 300 and 579
- A fair score is between 580 and 669
- A good score is anything above 700
BusinessTech notes that your likelihood of getting a credit application approved and receiving a favorable interest rate increases with your credit score because a higher score indicates that your credit is in better shape.
It’s important to remember that credit providers will also take other variables into account. Like your debt-to-income ratio, your debt amount might have a negative impact on your credit risk even if you have a decent credit score.
How to build good credit
1. Apply for a credit card or loan with your bank with whom you already have an account with.
2. Get a retail credit card, such as an account with a clothing store.
3. Open a joint account with your spouse or partner as the co-signer.
4. Increase your existing credit limit.
5. Maintain a healthy mix between unsecured and secured credit.
An important thing to do for boosting and maintaining your credit health is to use the credit you do have responsibly. BussinessTech advises living within your means as it is a key component in establishing and keeping good credit, not avoiding borrowing.
While a credit facility is vital to help you buy a house or car, or a student loan to help you receive a tertiary education, buying luxury or non-essential products like clothing or furniture on credit can cause your debt to grow quickly out of control and make it difficult for you to repay it.
Be realistic about your means and, more crucially, practice discipline in how you handle the debt you do have if you want to attract future lenders.
Also see: Budget cuts to help you save money
