Why is your credit score important?
By Ester Ochse, Product Head: FNB Money Management
A credit score is not something we think about often, until we apply for credit. Your credit score and other factors affect whether you will get approved for credit, how much you can borrow and, most importantly, how low or high your interest rate will be.
A credit score is basically a report card of how well you manage credit given to you by various financial institutions and retailers. Products like credit cards, personal loans, home loans, and retail store cards are some examples of the forms of credit one can receive from financial institutions. Your credit status is usually shown in a number format on various credit bureaus, and the higher the number, the better you have been managing your current and past credit.
This score indicates to financial institutions the level of risk they will take if they extend you credit. The better your credit score, the more chance you have of receiving credit and potentially at a better interest rate. The lower your credit score, the less likely you are to get credit, and if you do, the rate will be higher.
These are factors that negatively impact a credit score:
1) Being late on monthly payments
2) Missing monthly payments
3) Frequently applying for credit
4) Having credit usage continuously going up
5) Having a judgement against you
6) Being declared bankrupt
There are a few steps that can be taken to avoid negatively impacting your credit score. Align your debit order dates as closely as possible to your salary date. This way, you know they will be paid, and you don’t have to worry about it. Have an emergency fund in place for unforeseen events and expenses; this way you don’t need to rely on credit. Set up and stick to a budget. Check your score regularly to ensure you are on track and spending money on things that are important.