A credit score is a measure of your creditworthiness, which lenders use to determine how much money they can lend you and how much you can afford to repay over time. This score is found in your credit report and is crucial when applying for loans, bonds, or other forms of finance.
How is Your Credit Score Calculated?
Your credit score is derived from various factors in your credit report, including your past payment history, previous credit applications, and public records. Different credit bureaus may use different formulas and scales, so your score can vary between them. Some bureaus may have a maximum score of 700, while others might use a scale up to 1000.
Why Might Your Credit Score Be Low?
Even if you are not in debt and have savings, your credit score can be low if you haven’t previously applied for credit. Your credit report only includes your borrowing history, such as loan queries, applications, repayments, and judgments. It does not account for your bank account or investments unless they are financed through a bond. Therefore, having surplus income or a healthy savings account does not necessarily improve your credit score.
Impact of Loan Applications on Your Credit Score
When you apply for a loan, lenders may perform a ‘soft pull’ to pre-qualify you, which does not affect your credit score. However, a formal loan application involves a ‘hard pull,’ which leaves a footprint on your credit report and can lower your score if you make multiple applications in a short period.
Successfully borrowing and repaying a loan can improve your credit score, while missed payments or falling into arrears can significantly decrease it. Regular repayments demonstrate creditworthiness, making you a desirable customer to other lenders.
Factors Influencing Your Credit Score
Your credit score is influenced by several factors, including:
- Payment History: Issues like charge-offs, collections, bankruptcy, repossession, or foreclosure.
- Debt Level: The amount of debt you have, such as the ratio of your credit card balance to your credit limit.
- Debt Age: Older debts that are still being repaid can negatively impact your score.
Checking Your Credit Score
Checking your credit score does not negatively impact it. In South Africa, you can check your credit score for free once a year, as outlined in theNational Credit Act. Many services also offer more frequent free checks, helping you maintain a healthy score and monitor your credit report for any discrepancies.
Where to Get Your Credit Score
You can obtain your credit report for free once a year from credit bureaus likeTransUnionorExperian. Services like ClearScore provide monthly updates on your credit history for free, helping you stay informed about your credit status.
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Understanding your credit check score is the first step towards financial empowerment. Whether you’re looking to consolidate debt, make a significant purchase, or simply improve your credit score, Fasta.co.za offers quick and easy loan solutions tailored to your needs.
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