Knowing your Credit Score is a vital part of understanding your financial fitness – whether you’re planning a big-ticket purchase, like buying a home or a car, or simply looking to open a new clothing or cellphone account. Your Credit Score is a three-digit number that gives a credit provider an indication of your creditworthiness, and may inform their decision on granting you credit.
It is informed by a number of factors, including how and when you pay your bills; how much debt you’re liable for and how your credit behaviour stacks up against that of other borrowers. A TransUnion Consumer Credit Score ranges from 0 to 999, with numbers upwards of 614 rated ‘Favourable’, Good’ or ‘Excellent’ and downwards rated ‘Average’, ‘Below Average’, ‘Unfavourable’ or ‘Poor’.
While it’s not the sole factor taken into account by credit providers – they may also take into account your employment history; your income and affordability assessment; and the type of credit that you’re applying for - your Credit Score may play a role in determining the interest rate you receive on a loan or the spending limit on your credit card or clothing account.
This is especially relevant when negotiating the interest rate on big ticket credit items such as vehicle finance or a home loan, where a few percent difference can cost you thousands every month. For example an additional 1% above the current prime lending rate for a R1.5 million home loan taken over 20 years, will cost you approximately R1 000 extra each month or more than R240 000 over the lifetime of the loan.
Your Credit Score is also an indication of the strengths and weaknesses of the information contained in your Credit Report.
If your Credit Score isn’t where you think it should be, it’s important to review the information contained in your Credit Report to ensure that it is accurate. This also helps to safeguard against identity theft, which can have dramatic consequences both over the near- and long-term.
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If the information contained in your Credit Report is accurate but you’re unhappy with your Credit Score, what can you do about it?
In terms of improving your Credit Score and generating a more favourable credit report, consider these factors:
While there’s no guarantee that a particular Credit Score will ensure that you get approved for credit or a favourable interest rate, there are no negative effects to ensuring that your Credit Score is healthy.