Credit Rating: What is it and how do I get it?
|
 So, you have your eye on a brand new car (or perhaps just a second-hand one, but to you it will be like new) and you need to finance it, as most South Africans who purchase new and used vehicles do.
You may not be aware of it, but your ‘credit rating’ is what stands between you and the keys to the car of your dreams. What is a ‘credit rating’? Let’s take a look.
Whether you like it or not, know about it or not, you no doubt have one: a credit rating. Things like past loans, payment history, bankruptcy, and other factors influence the summary of your rating. And, though your financial history (good, bad, or mediocre) will always be with you, it is perfectly possible to improve your credit rating, and it is not even that hard to do. Your credit rating is a vital element of your financial well-being.
What is the difference between a credit rating and a credit report? Though these two share a lot of the same information, there are differences between them. Your credit rating is essentially just a number used to summarise your credit history, whereas a credit report contains pages of information related to that same history.
The factors that influence you credit rating are:
• Payment history (35% of overall rating)
• Amounts owed (30% of overall rating)
• Length of credit history (15% of overall rating)
• New credit (10% of overall rating)
• Type of credit used (10% of overall rating)
It is important to note that your credit rating is fluid and can change on a regular basis as new information about your accounts is added to your records. It is important to keep in mind though that a major change in your credit rating is more likely to be affected by the addition of negative information, such as a judgment or serious payment default, than by a minor change due to regular payments and consistency on your part with regard to your debt settlement.
You can improve you credit rating by paying all monthly installments on time, by reducing your debt faster by paying more than the minimum amount required each month (with the added benefit of reducing the amount of interest you repay), and by avoiding taking on additional debt while you are repaying other loans.
Here are some tips on how to maintain a healthy credit rating and a good credit report:
• Always ensure that you pay the full installment due on your accounts
• Budget carefully – never apply for credit if you are unsure if you can afford the repayments
• Always pay your accounts on time each month
• If you find that you are unable to meet a repayment, contact the credit provider immediately to make an alternate arrangement, and never ignore a letter of demand for payment
• Always try to keep all debt repayments between 20% and 30% of your monthly income |
Debt Blog 