You probably think you’re doing the right thing by avoiding credit facilities on offer and only paying for something when you have saved enough money for it. Sorry to say, this is the wrong thing to do.
You need a good credit history for just about everything. It may be something big like applying for a home loan or something smaller like renting a car or booking accommodation at a hotel. I bet you didn’t know it even affects your chances of getting a job or renting a nice place to stay. Budget Cash & Cellular will assist you if you have been blacklisted or have a poor credit score.
Studies show that one in five South Africans do not show up on the credit radar. They are at risk of never qualifying for traditional lines of credit. These people are what they call “credit invisible”. It’s a catch-twenty situation; in most cases a person needs to have a good credit history in order to get more credit. Basically a good credit record is proof that you are highly likely pay back what you owe.
Ironically we get messages on one hand about avoiding the credit trap, and on the other hand we’re told we’re at a disadvantage if we don’t have a credit history. The trick is to be a responsible credit user but to avoid the cycle of debt.
What’s your score?
A credit score is a three-digit number that measures how likely you are to repay a loan on time. It uses information from your credit report to predict the risk that you will not pay back the loan within the required 24-month lending period.
A credit report tells a story of your credit history; when and where you applied for credit, who you borrowed money from and who you still owe. It also notes if you’ve paid off your debt and if you make monthly payments on time.
Contact Budget Cash & Cellular for assistance on finding out how well you score off your credit record.
The point is to strive for a good credit score and this will open up opportunities for financial lending in the future. Some things like applying for a small overdraft facility or a car loan are a bit easier to get with a poor credit score. Applying for a home loan or finance to start up a business is another story. Your credit history will be scrutinised and you had better have your credit housekeeping in order to stand any chance.
Banks want to lend money and might overlook a poor credit score in certain areas. However, they’re quick to penalise a person they regard as ‘high risk’ by charging a higher interest rate. Someone with a good credit score can usually negotiate a better interest rate.
Credit history used for reference checks
Forget about checking your Facebook page, many employers now run credit checks on prospective employees. If you’ve had a problem servicing your debt in the past, it is best that you are upfront and honest with the person interviewing you. Let them know what happened and what you’ve done to fix up your credit mess.
The same applies for renting accommodation. A letting agent is obliged to run a credit check on someone interested in renting a home or apartment. You may be totally trustworthy but they can’t take your word for it.
Get into the credit pool but don’t swim with the sharks
If you are ‘credit invisible’, it’s time to start building a credit record. A good place to start is applying for a store card with an outlet such as Truworths or Mr Price. If you are employed and receive a steady income, you’ll probably get one quite easily. They will phone you employer to verify your employment and salary so it’s a good idea to talk to the Human Resources manager to warn them of your intentions.
Check your budget and determine what you spend on clothes and shoes on a monthly basis using cash. Allocate this amount to your store card; then shop responsibly and pay your monthly payments in full and on time. Don’t fall into the trap of buying more than you can afford as your good intentions will come back to haunt you.
Over time you will build up a credit record and increase your credit score. This leaves you open to apply for credit for bigger things like a car or house when the time comes.
Remember, you want to be ‘credit visible’ but you don’t want to fall into the debt trap. It’s all about clever budgeting, responsible buying and a commitment to honouring your payments.