As you start or continue a journey with a credit score, it is important to understand the ins and outs of what credit is and whata good scorecan do for you. A credit score can be confusing but in this blog post, we break it down to make understanding your credit score simple.
What is a credit score?
Simply put, this is a number that shows a credit provider how worthy you are for receiving credit from them. They use this number to decide the interest rate they can offer you and how much they are able to lend you for what period of time. In short, with a good score you get better options and lower interest rates.
What is a FICO, Vantage and Empirica score?
A FICO score, Vantage score and Empirica score are different kinds of acreditscore provided from a credit bureau.FASTA uses TransUnion as their creditbureau. TransUnion providesFASTAwith the choice of a FICO or Empirica credit score.
Differentcredit scoresare used to assess your credit risk for different credit products. For example, yourcredit worthiness for a home loancan be rated very differently to your credit worthiness for a retail store card.
What affects my credit score?
Breaking down all aspects of what yourcredit scoreis and how to make it good or remain good will make credit less confusing. Credit falls into categories and each one holds a different significance in yourcredit score. Knowing what goes where will guide you on yourcreditjourney.
Payment history
Your payment history holds a significant amount in contributing to yourcreditscore. This is counted as 35% to your overall score. This is determined by how often you pay back yourdebtand if you pay back on time or late. Missing one payment can negatively impact your score.
Amounts owed
The total amount of money you owe (are debted to) canaffect your credit scoreby 30%. This impact is quite significant so by paying your debts on time or early you can avoid a negative score.
Length of credit history
The length of yourcredithistory is simply the amount of time you have used credit as well as the average age of your credit account. This makes up 15% of your score. Having acredithistory of at least 2 years will allow you to take more with lower interest rates. Also, depending on yourcredit score, if yours is high then the 2 years will be ideal.
New credit
Newcreditmakes up 10% of your credit score. Some people think because it’s such a small amount that it doesn’t need attention. A little goes a long way and this is not to be overlooked. This part looks at the number of credit accounts you have looked at recently, as well as how many times lenders have madehard enquiriesin the past 12 months.
Credit mix
Making up 10% of yourcredit score, the credit mix looks at people with a diverse profile. What is noted here is how someone manages a few loansat a time. For example, a person with a mortgage, student loan,short term loanand vehicle loan finance may have an easier time building credit than someone with just a credit card. As you have more payments to manage over time, this is helpful inbuilding a good credit score. Start small, repay yourloanon time, and then build up!
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What is a good credit score in South Africa?
Thegoal is to have a good creditscore, but knowing what that is is the challenging part. Below is a view of all ranges ofcreditscores, and you are able to see where you fall in:
Exceptional
800 – 850
Very good
740 – 799
Good
670 – 739
Fair
580 – 699
Poor
300 – 579
Conclusion
Use this blog as aguide on understandingyour credit score better. As overwhelming ascreditseems, you need to start somewhere; why not start now? UseFASTA loans to kick start your creditjourney. Apply now and see if you are eligible for aloantoday!
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