If you have recently graduated from high school or university, or just entered the job market, the chances are that you may have very little to no experience with credit products. The words ‘credit score’ and ‘credit history’ may be new to you, and if you have plans of buying your first car, starting a business, or purchasing a home in the future, you’ll need to get familiar with these words – and in essence, get familiar with building a good credit score.
But where do you even begin? We spoke to Ryan Singh, our Credit Risk Engineer, onbuilding your creditscore from scratch and how loans can help you build good credit. Keep reading for more insight.
Ways to Improve Your Credit Score
A goodcredit scoreis one that grants access to the required credit product at the lowest cost! Joking aside, a credit score is a measure of the creditworthiness of a borrower and can be thought of as a single number summary of the history of honouring debt obligations. Credit scores are used by credit providers to determine which credit products to offer consumers and, more importantly, the rate or cost of that product.
A good credit score means access to a wider range of credit products and at a better price. The value of a credit score that you might see on your credit report will depend on which credit provider is being used. Values generally range from 350 to 850 with a score above 600 being considered better than average. Exactly how credit scores are determined is a closely guarded secret by the different credit bureaus and providers of such information.
A score of above 660 is generally considered a good credit score. A minimum score of 600 is required to have a fair chance of being approved for a homeloan. Building a lengthy history of the responsible use of debt and honouring your debt repayments are amongst the rungs of the ladder leading towards a good credit score.
Credit bureaus look at the following factors when calculating your credit record:
- Yourdebtrepayment history.
- Amounts owed.
- Types of credit applied for and how often.
- How long your accounts have been open.
- How much of your available credit you’re using.
- Whether there is any history of you not honouring a debt obligation that resulted in bankruptcy or a judgment against you.
Why It’s Difficult To Apply For Credit When Young
Building a creditscore from scratch on its own is not too difficult. However, building up a good credit reputation over time is a lengthy process, and one that most of us are unaware that we should have been doing. YoungSouth Africans may face difficulties accessing creditas most are unaware of the importance of building a good credit reputation.
Credit can also be difficult to access as consumers are treated as guilty until proven innocent. Only once a good credit history is established do borrowers receive favourable terms and access to a broader range of credit products. For young South Africans, getting the right credit product while building your credit score may be challenging. Typically there is a very limited range of creditproductsaccessible while building up your credit reputation.
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How Can a Loan Affect Your Credit?
Building a credit score is all about establishing a history of credit transactions and good debt repayment performance. Taking out a small personal loan, like FASTA’s credit offerings, and repaying it on time can help to establish a record of good debt repayment and a better credit score.
What advice would you give to young South Africans looking to build their credit score from scratch?
Building financial independence, success andfreedom can be achieved by using a suite of financialproducts designed to help you along the journey. Having access to credit financing at a reasonable price is an invaluable tool in that armory of financial products.
Myadvice to young SouthAfricans would be to invest in building your credit reputation early. A good credit reputation will stand you in good stead when it comes to accessingfinances. Using debt is a decision that should be taken seriously as non-repayment or poor repayment performance of debt can negatively impact your credit score. Building a credit score from scratch involves establishing a history of successful repayment; this doesn’t necessarily have to be a dreaded commitment to a longterm loan.
Any credit transaction that is reported to the credit bureau will be used to establish a credit history. A small cellphone contract or store credit card are typical entry level credit products for consumers with athin history of credit usage.Credit card benefitscan often mean that it may be a cheaper option than using a regular debit card, paying off these expenses on time can save you money and build a credit score in the process. Keep a keen eye open for these valuable opportunities.
How to Check Your Credit Report
The first step to building or improving your credit score is knowing where you currently stand. In South Africa, you’re entitled to one free credit report per year from any of the major credit bureaus like TransUnion, Experian, Compuscan, or XDS. Checking your credit report helps you understand your current score, spot any inaccuracies, and see which factors are positively or negatively impacting your profile. It’s a simple process, register online with the bureau of your choice, verify your identity, and download your report. Reviewing it regularly helps you stay in control and track your credit progress over time.
Types of Credit
Understanding the different types of credit available is crucial when building a strong and balanced credit profile. There are generally three main types: revolving credit (like credit cards), instalment credit (like personalloansor vehicle finance), and open credit (such as utilities or mobile phone contracts). Each type of credit plays a unique role in your credit mix, which is one of the factors considered in your credit score. Starting with manageable options, like a small FASTA personal loan or a store account, can help you gain experience handling credit responsibly and diversify your credit history.
Why a Credit Score Is Important
Your credit score isn’t just a number, it’s a financial passport that can either open doors or close them. A strong credit score increases your chances of being approved for loans, credit cards, and even rental applications. More importantly, it can help you qualify for better interest rates and terms, saving you money in the long run. Whether you’re planning to start a business, finance a car, or one day buy a home, a healthy credit score gives you the leverage to make those goals more achievable. That’s why starting to build your score early, using responsible financial tools like those from FASTA, can make all the difference to your future.
Conclusion: Start Building Today for a Better Tomorrow
Building a credit score from scratch might seem overwhelming, but with the right knowledge and a few smart steps, it’s completely achievable. From checking your credit report to understanding the different types of credit, and using products like FASTA’s affordable loans to demonstrate responsible borrowing, every action you take can positively influence your credit journey. Remember, your credit score is more than just a number, it’s a reflection of your financial habits and a key to unlocking future opportunities. Start small, stay consistent, and take control of your credit story today. Your future self will thank you.
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