Credit score 101
If you’re thinking about buying a home in the future, chances are you’re planning on applying for a home loan. But did you know that your credit score can affect whether you qualify for a loan – and even impact the interest rate you’re offered? Here’s a closer look at this important three-digit number.
1. What is a credit score?
Your credit score is a number that’s calculated by the credit bureaus to represent your creditworthiness – that’s how likely you are to repay your debt. While the various bureaus use different scoring models, credit scores generally range between 300 and 850 – and the higher your score, the better.
2. How is it calculated?
The formulas that credit bureaus use to calculate credit scores take several factors into account. These include your payment history, how much debt you currently have, how long you’ve been using credit, the types of credit you have, and how much new credit you’ve applied for.
3. Why does it matter?
If you google ‘credit score’ you’ll see that it’s often referred to as your financial CV. Financial institutions take your score into account when deciding whether to give you credit or not – this means your score can affect whether you qualify for a home loan, credit card, personal loan or vehicle finance as well as the interest rate you’re offered.
4. How can I improve it?
Here are three ways to create a track record of good credit behaviour:
- Pay your accounts on time. Don’t be late and don’t skip payments.
- Keep your credit card balance low. Aim to use less than 30% of your available limit.
- Don’t apply for too much new credit. These applications show up as hard enquiries on your credit report, and having too many can knock your score.
5. What about my credit report?
Your credit report provides a more detailed look at your credit history. It lists things like credit account information (e.g. credit cards, store accounts, home loans, etc.), bankruptcies, court judgements, and credit enquiries. If you’d like to keep tabs on your credit history, you can request a free annual credit report from each of the credit bureaus, including Experian, Compuscan, TransUnion and XDS.
Financially ready to buy a home?
If you’re searching for the perfect place to call home, why not explore what Westbrook has to offer you? This brand new Port Elizabeth suburb offers secure family living in affordable designer homes and access to top-class schooling. For more information, email us on email@example.com or request a viewing today.