In South Africa, as in many parts of the world, your credit score will play a key role in your life. A credit score is a numerical representation of your creditworthiness. In turn, creditworthiness means your history of managing credit and debt, which tells lenders how risky you are to lend to.
While often overlooked, maintaining a good credit score
Why is it Important to Have a Good Credit Score?
A good credit score opens doors to wider financial opportunities. Whether you’re applying for a mortgage, looking for a personal loan, or even applying for a mobile phone contract, lenders will use your creditworthiness to decide how much risk you pose if they give you the loan.
A strong credit score shows your reliability and responsibility in managing credit obligations, giving lenders the confidence you will pay back the loan in full and on time. When you look like a better risk, you can get more favorable interest rates and will be approved for larger amounts on a wider variety of credit products, so it is important to have a good credit score.
Without one, you will find many credit-based doors closed to you. Few of us can afford to pay for big-ticket purchases, like cars and houses, without taking out a loan. So this limitation can have a significant impact on your life. Plus, even if you can get approval for a specific loan, your interest rate will often be higher, and this can make a huge difference in how affordable your debt is, too.
Here are the Advantages of a Good Credit Score
What are the advantages of a good credit score, then? We’ve covered a few above, but let’s take a closer look.
- Access to Better Interest Rates: A high credit score will qualify you for lower interest rates on loans and credit cards. Lenders see individuals with excellent credit scores as low-risk borrowers, which is why they get these preferential interest rates. This translates to substantial savings over the life of a loan, making borrowing more affordable and manageable and saving you a significant amount of money over the lifetime of the loan.
- Increased Approval Odds: With a good credit score, you’re more likely to have loan applications approved swiftly and with favorable terms. Lenders prioritize applicants with solid credit histories, making it easier to secure financing for major purchases.
- Enhanced Negotiating Power: Here’s an advantage of a good credit score few people think of! Armed with a stellar credit score, you can negotiate better terms and conditions when applying for loans or negotiating contracts. Yes- you can negotiate with loan providers! And your fancy credit score will be the key to better results. You’re in a stronger position to bargain for lower interest rates, higher credit limits, and more favorable repayment terms, ultimately saving you money. Lenders know a person with a good credit score doesn’t have to ‘take what they can get’, and can get approval with a different lender easily.
Here are the Disadvantages of a Good Credit Score
Are there disadvantages to a good credit score? There can be a few small downsides, but these are very limited. Mostly, you will be a target to lenders and marketers, as they want to attract people like you. You are proven to pay on time and without difficulty, so you may see an uptick in marketing aimed your way. However, with the POPI act in place in South Africa, and stricter measures around privacy and the need to consent to a credit check, this is less of a concern than it once was.
People with great credit scores also have to keep their temptations under control. Just because you can access credit to buy something doesn’t mean you should! Most folks with bad credit know they can’t get it, so find other ways to achieve their goals. You can easily fall into a debt trap with credit if you lose sight of why your score was so good in the first place!
Lastly, you can face pressure from others to share your good fortune and help them out by co-signing loans or taking out a loan in your name for them. It is hard to turn away friends and family, especially if they are struggling, and doing so can make bad blood. However, always remember that a person with a bad credit score can almost always blame only themselves for it. They have either defaulted on loans outright, become over-indebted and can’t afford the credit they have, or have been a poor payer. Even if they have big promises of paying you off regularly, think about it like the lender will- does their risk profile say those promises are true? Are you happy (and able) to pay that loan for them if they stop paying? That’s the boat you will find yourself in if you aren’t careful.
Why is it So Important to Know Your Credit Score?
Understanding your credit score empowers you to take control of your financial future. Even if it is a bad score! Bad scores can always be improved, but you can’t fix what you don’t know about.
By regularly monitoring your credit report and score, you can identify any inaccuracies or fraud that may creep onto your credit profile. Otherwise, you will never even know it was there! Additionally, being aware of your credit score lets you make informed decisions about credit and what you can afford, and you can take proactive steps to improve or maintain your creditworthiness.
Accessing credit to further your financial goals hinges on a strong credit score. If you keep your credit score high and are proactive when handling your debt load, you will unlock lower borrowing costs, increased approval odds, and greater financial flexibility. Those are always great tools to have in your financial toolbox!