While many South Africans may at some point in their life apply for bank loans or other loans such cell phone contracts, not all individuals are successful in getting approved for the loan that they applied for.
Financial institutions have a responsibility to ensure that the applicant can not only pay back the loan, but that the applicant also avoids spiralling into a black hole of debt.
“In tough economic times, financial institutions cannot issue a loan if there is any possibility of it not being paid back,” says Mark Bishop, Managing Member at Credit Clear. “The major credit providers are usually quite strict and won’t lend money to anyone considered too risky,” added Bishop.
Being rejected by a financial institution can happen to anyone. A bank can reject a loan for many reasons including having a bad credit history which is reflected on your credit report. Your credit report tells lenders how good you are at borrowing and repaying money.
Your credit report also gives you an indication of your credit score which is a number based on your financial wellbeing. Creditors make use of credit scores to evaluate the risk in transacting with you and the probability of you re-paying your loans on time. A credit score ranges for example from 300 to 850, the higher your score the more financially trustworthy you are considered to be. If, however you constantly pay your accounts late it will affect your score as you will be a higher risk than someone who pays on time.
Being credit impaired is a major stumbling block for an individual in trying to gain financial freedom; you won’t be able to obtain any kind of credit and that is why it is important to check your credit score regularly especially if you need to apply for credit.
A good credit score is an asset and should be maintained. The only way to improve your credit score is by reviewing any negative items on your credit report and paying them off and managing your debt correctly.
It is important to know how to improve your credit score (if it is bad) before applying for credit or personal loans.
Follow these tips to improving your credit score.
Know and constantly monitor your credit score
Checking your credit score will help you determine the factors that are affecting it the most. It is also important to check if there are mistakes on your credit report, such as inaccurate personal information or fraudulent accounts opened in your name.
Pay your bills on time
Your payment history is the largest contributor to your credit score. Be sure to consistently pay off your debt at the end of each month.
Pay down debt
Pay downs occurs when the amount you repay exceeds the monthly premium amount you currently pay.
PERSONAL FINANCE