A good credit score is one of the most important pieces to your financial puzzle. Your credit score determines whether you will be able to get a loan for a house, car, or for anything else you may require finance.
With a high credit score, you can qualify for loans and credit at lower rates and save money. With a low credit score, you pay more for interest on everything from car loans to mortgages. Knowing what factors affect your credit scores – and how to improve them – is crucial if you want to have control over these numbers that will impact every aspect of your life.
A good credit score is something everyone should know about because it influences all aspects of our lives, whether we are applying for a loan or not. It’s important to understand what affects your scores so that you can take steps towards improving them if necessary.
How to establish and build a credit score
Building a credit score can seem like an impossible task, but there are steps you can take in order to establish yourself as being trusted with money and goods from other people.
Start with an interest free credit facility that you can afford and instead of paying cash, purchase something using this facility. Make sure to make all your instalment repayments on time every month so as not get hit with any fees or extra charges. It is best to pay any credit you take during the month in full at the end of the month.
A cell phone contract or retail store account are good options, however, it is important to be able to afford the repayments and pay consistently in order for the plan work out well- otherwise you might find yourself worse off than before.
Credit scores are typically rated on a scale from 0 – 1000 as follows
- 767 – 999 Excellent
- 681 – 766 Good
- 614 – 680 Favourable
- 583 – 613 Average
- 527 – 582 Below average (Below 600 makes you high-risk)
- 487 – 526 Unfavourable
- 0 – 486 Poor
Factors that influence your credit score
1.) High credit utilization and multiple credit enquiries
A sudden uptick in credit applications will red flag your profile, as well as consistently high utilization.
2.) Missing or late payments
Missing or late payments can lead to a negative impact on your credit score. The consequences of missing a payment could mean higher interest rates when applying for loans in the future or being denied from obtaining certain benefits such as mortgages, car loans and student loans.
3.) Unused credit facilities
Closing unused credit could be a good idea. If you have too many cards with the same amount of money on them, it is possible for your debt balance to get out of control and lead to problems in other areas of life like getting approved for loans down the line.
4.) Court judgement or backlisting
Blacklisting can have serious consequences for your score. A court judgment or ‘blacklisting’ will negatively impact any future loans, insurance applications and other types of financial transactions that require a credit rating from creditors such as banks. Blacklisting happens when you do not pay a creditor for a period of time and they blacklist your name with the credit bureau.