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What’s the importance of your Credit Score?

October 21, 2019 by TransUnion

Knowing your Credit Score is a vital part of understanding your financial fitness – whether you’re planning a big-ticket purchase, like buying a home or a car, or simply looking to open a new clothing or cellphone account. Your Credit Score is a three-digit number that gives a credit provider an indication of your creditworthiness, and may inform their decision on granting you credit.

It is informed by a number of factors, including how and when you pay your bills; how much debt you’re liable for and how your credit behaviour stacks up against that of other borrowers. A TransUnion Consumer Credit Score ranges from 1 to 999, with numbers upwards of 623 rated ‘Medium to Low Risk’ and downwards rated ‘Medium to High risk’.

While it’s not the sole factor taken into account by credit providers – they may also take into account your employment history; your income and affordability assessment; and the type of credit that you’re applying for - your Credit Score may play a role in determining the interest rate you receive on a loan or the spending limit on your credit card or clothing account.

This is especially relevant when negotiating the interest rate on big ticket credit items such as vehicle finance or a home loan, where a few percent difference can cost you thousands every month.

How to improve your credit score:

Manage your accounts
Make sure you pay your accounts in full every month. Partial payments can negatively impact your score and leave you playing catch-up with growing outstanding debt.

Limit your amount of debt
Keep the utilisation of your current credit facilities below 35% of your limit.

Address negative listings
Take active steps to settle outstanding debt if you have any judgments or defaults against your name.

Remember to request settlement documentation to clear your credit record.

Grow your credit history
Long-standing credit accounts that are consistently settled in full reflect positively on your repayment reliability.

Maintain a healthy mix of secured credit (home loans and vehicle finance) and unsecured credit (store accounts and credit cards).

Limit your enquiry activity
Don’t shop around for too much credit at the same time. Numerous applications could raise a red flag to lenders about your current financial situation.