A credit score is a statistical number that is used to measure a consumer’s credit worthiness. Lenders use credit scores to determine the risk assigned to a borrower’s ability to repay his or her debts. The higher your credit score the easier it becomes for financial institutions to come to decision to give you credit. Furthermore, the better for you in terms of getting cheaper credit (low interest rates). Individuals with a higher credit score enjoy low interest rates on credit extended to them.
Payment history and credit utilisation ratio are the most critical in credit score factors among other factors such as length of credit history, types of credit. When calculating credit scores, payment history and credit utilisation ratio can carry weight of as much as 65%. All the other factors such as length of credit history and types of credit can carry weight on average of 10% each when calculating credit scores.
The following will negatively impact your credit score:
- Defaulting on a payment
- Poor payment history
- Reversing debit orders
- Not paying your accounts timely
- Short paying your accounts
- High credit utilisation ratio – For example, every R100 extended to you must utilise less than R35.
Knowing your credit status is vital, especially if you are going to be applying for any kind of finance in the future. Debt Sage can pull your credit report and you’ll get an in-depth view of how much debt you have and assess your credit worthiness.