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A credit score is a simple way to show whether a person knows how to manage their credit. It’s almost like a financial CV that gives credit providers information on how you are currently managing and managing your loans.
Having a good score will not only help credit providers approve your application, but also get you the best rates, Capitec explains.
The bank noted that a person’s credit score is calculated by looking at your past and current credit behavior, which is listed on your credit report and available at credit bureaus.
Capitec said the following factors affect your credit score in South Africa:
- Your payment history – Pay your accounts on time and in full. On-time payments show that you are trustworthy and that you are ready to pay off your debt as agreed with the credit provider. Missed or partial payments, however, will have a negative effect on your credit score and will remain visible on your credit report even after you have finally succeeded in paying off your loan in full.
- Your credit balances – Keep your credit balances low. Credit providers look at the total amount you owe (outstanding balance) against the original loan amount or credit limit. It’s about seeing how much you’ve already paid off and how often you use the credit (in the case of revolving credit).
- Length of credit history – The longer your credit history, the more information you have about yourself and the better the picture of your long-term credit behavior.
- New credit – Do not open too many new credit accounts at the same time, as this could suggest that you are having financial problems or trying to buy things that you cannot afford.
- Types of credit in use – Using a variety of credit products shows that you are able to handle different types of credit. Installment loans, such as personal loans, car financing, or home loans, measure your ability to pay regular monthly payments because the amount and term are often fixed. Revolving credits, such as credit cards and store accounts, measure how easily you can manage your budget on a monthly basis, as the payment requirements for these accounts vary based on the amount spent over the course of a year. cycle.
Calculate affordability
Credit providers need to do an affordability calculation to see how much money you have left after paying your financial obligations and deducting your living expenses.
Capitec said South Africans can improve their affordability in the following ways:
- Manage your income – Know what your monthly income is, how sustainable it is, and if it is enough for all of your financial obligations and monthly living expenses.
- Reduce your expenses – Review your financial plan and decide where you can cut costs. This can include paying the lowest bank charges, closing accounts, reducing spending on non-essential periods, managing your monthly grocery budget, paying less for transportation, or joining a club. of ski lifts.
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