Credit score 101
Have you ever thought about your credit score? This three-digit number can affect your access to finance – from a credit card or personal loan to vehicle finance or a home loan. If you’re not sure how it all works, here’s a quick overview to get you up to speed.
1. What is a credit score?
It’s a number that’s calculated by the credit bureaus to show how creditworthy you are. Banks and other financial institutions will take this score into consideration, along with various other factors, when deciding whether to approve you for credit.
2. Why should you care about your score?
It can affect whether you’ll have access to credit as most financial institutions will check your score to get an indication of how well you’ve managed credit in the past. It can also affect the interest rate you’ll be offered – if you have a good score, you’re likely to benefit from a lower interest rate.
3. How is it calculated?
The credit bureaus take a number of factors into account when calculating your score, including your payment history and current debt, as well as how long you’ve been using credit and how often you apply for new credit. The higher your score, the more likely it is that you’ll be approved for credit.
4. How can you improve your credit score?
One of the most important things you can do is pay your accounts on time, whether that’s your credit card, store card, student loan or vehicle loan. Don’t miss a payment as this can really knock your score. In addition, try not to use all your available credit (i.e. don’t max out your credit cards) and avoid applying for a lot of new credit.
5. How can you check your credit health?
One of the easiest ways to check your credit status is by accessing your credit report. According to Investopedia, this is a “detailed report of an individual’s credit history prepared by a credit bureau.” Good news is that you can get one free report annually from each of the main credit bureaus, including Experian, TransUnion, XDS and Compuscan.
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