With yet another repo-rate increase earlier this month, credit has once again become even more expensive. However, credit is one of the most powerful financial tools around and South Africans must manage it as well as they can.
Without credit, many South Africans would not be able to make big purchases, such as a car or a house, but getting credit is largely dependent on a good credit score.
Banks and other responsible lenders use credit score to assess your risk profile—in other words, how likely will you repay your loan within the parameters agreed. Every time you miss a credit payment or pay late, it gets noted on your credit score.
According to Warren Tromp, Executive for Product Development at Nedbank, “A consumer’s credit profile gives lenders a good idea of how well you have managed your credit in the past. The better your score is, the more likely you will get credit, as it shows that you have been managing your debt well.”
“In order to make wise money choices, you first need to know how things work. That’s particularly true when it comes to credit, and specifically, ensuring you have a good credit score,” he says.
Here’s how to build yourself a good credit score. It’s never too late to begin.
Find out what your credit profile is. You are entitled to one free credit report a year. More frequent reports attract a nominal fee. You can, however, check your credit score as often as you like. Nedbank clients can do this on the Money app, and non-clients can use https://mycreditscore.nedbank.co.za/ to check their scores for free.
Below are a few tips, to help you learn how to build a credit profile.
o If you take out credit, be sure that you can afford the repayments and keep up to date with them. If you find you can’t, reach out to your creditor to see if you can extend the loan period so your repayments are reduced and manageable, according to the type of structured loan you have agreed upon. Alternatively, consolidate your loans into a single loan that’s easier to manage.
o If you have any court judgments against you for non-payment, get that sorted out as soon as possible—judgments will always negatively affect your credit score.
o If you keep your accounts up to date and use less than half the credit available to you, you will present yourself as a somebody who is responsible, takes good money decisions and can be trusted.
o Only take out loans from registered credit providers. If you do so, you will be protected by the National Credit Act, which prevents irresponsible lending, sets maximum interest rates, and ensures you will be fully briefed on all the costs upfront.
Get affordable credit. The best way to get affordable credit is to deal with a responsible lender like Nedbank. That way you’ll be sure the lender has assessed your ability to repay your monthly instalments and that the interest earned is fair. A credit card is also a good way to access short-term credit but remember the rules above relating to building up a good credit profile.
Keep on checking your credit score. Just as you might check your fitness app regularly to check if you are being active enough and that your vital signs are good, so you should check your credit score regularly—once a month is about right. That way, you’ll quickly identify any errors or adverse marks, so they can be dealt with quickly. It’s worth pointing out that identity theft can occur and is often the cause of a poor credit score—regularly checking your credit score will soon reveal if your identity has been hacked.
“Building and maintaining a good credit score is not rocket science; you just need to understand what factors affect your credit score, take the necessary action and then keep an eye on your credit score to make sure everything is on track,” he says. “That way, you’ll always be in a position to get the credit you need when you need it.”
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