Your credit score is a powerful number that impacts various aspects of your financial life in South Africa. From loan applications and interest rates to insurance premiums and even job opportunities. However, many misconceptions and myths surround credit scores, leading to confusion and potentially hindering your financial wellbeing. AtFASTA, a proudly South African company committed to financial empowerment, we believe in fostering financial literacy and transparency. This blog explores 5 common myths aboutcredit scores specific to SouthAfrica and equips you with the basics you need to understand and manage your credit score effectively.
Myth #1: My credit score is just a number, so it doesn’t matter
Reality:Your credit score is a crucial indicator of your creditworthiness, directly impacting your ability to borrow money and the terms you receive inSouth Africa. A goodcredit score can unlock lower interest rates on loansfrom South African lenders, favourable insurance premiums from local providers, and even better rental agreements, ultimately saving you money in the long run. Conversely, a low credit score can lead to higher interest rates,loan application denials at South African financialinstitutions, and even difficulty securing employment in certain sectors.
Myth #2: Checking my credit score hurts my score
Reality:Checking your credit score yourself, also known as asoft inquiry, has no negative impact on your score. In fact, regularly monitoring yourcreditreport and score is crucial for identifying errors and preventing potential fraud. You cancheck your credit score for freefrom major online platforms in South Africa, such CompuScan, Experian, and ClearScore.
Myth #3: Only late payments affect my credit score
Reality:While late payments are a significant negative factor, yourcredit scoreis
influenced by several other aspects of your credit history specific toSouth Africa,
including:
- creditutilisation ratio:This refers to the amount of credit you’re using compared to your total credit limit. Aiming for a utilisation ratio below 30% is considered ideal.
- Length of credit history:A longer credit history with responsible credit management generally leads to a highercredit score.
- Credit mix:Having different types of credit managed responsibly, such as a credit card,personal loan, or retail store account in South Africa, can positively impact your score.
- Hard inquiries:When you apply for credit, like ashort term loanor a new credit card, a hard inquiry is placed on your credit report, which can slightly lower your score. However, these inquiries typically have little impact and the effect decreases over time.
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