A good credit score is a valuable asset and worth working towards. Most South Africans find it extremely difficult to live without credit and a good score can save you a lot of money. It will give you better access to credit at a more favorable interest rate. Over time, this can save you a large amount of money.

All South Africans are entitled to one free credit report a year. It is a good idea to take advantage of this in order to monitor your credit rating and credit score. The report should show you where many of your weaknesses are and assist you in improving your score.

In order to do this, it is necessary to understand what the score says about your credit history. Scores range from 300 to 850 with the higher scores being more positive. A score in excess of 700 is a good score and should give you good access to credit at a preferential interest rate. Above 767 is excellent and shows you to be a very low-risk consumer that institutions would be happy to give credit to.

Scores below 581 are considered to be below average and a higher risk to financial institutions. Below 526 is seen as unfavorable and you will have difficulty getting finance with a score in that range. If you did manage to get credit the interest will be extremely high.

Credit score guideline

650 to 999 is minimum risk
620 to 649 is low risk
600 to 619 is average risk
581 to 599 is high risk
1 to 580 is very high risk

Lenders look at others factors when granting credit, particularly your affordability. They need to ensure you have sufficient income after expenses to repay the loan or financing. The credit score is, however, extremely important to them as it illustrates your past credit behavior and determines the risk of the loan.

Credit scores are used for store accounts, credit cards, cellular telephone contacts, personal loans and home loans. A poor score will result in denial of credit or higher interest rates. Even a one percent higher interest rate could add up to a large additional repayment over time, particularly with a home loan.

It is advisable to understand the scores and what they mean, establish and monitor your own score annually and strive to constantly improve it.

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