Home Featured What is a credit score and why does it matter?

What is a credit score and why does it matter?

by Zahid Jadwat

You may have heard about a “good” credit score at some point when applying for a credit card or even a home loan. But what is it really and why does it matter?

Maryam Mkwanda spoke to Busi Selesho, a widely-acclaimed financial advisor. Selesho said, “a credit score is a way where we are measured on how we behave financially”.

“It’s so that we can be able to be trusted with certain things and not trusted with other things,” she added.


Selesho said some people, either through ignorance or carelessness, dig themselves into a deep hole that is a bad score. This, she warned, could result in future credit applications being declined.

“When you have a credit score, the creditors sort of have an idea that you have been able to pay others so you can also pay them; or you don’t know how to pay other people so we’re not going to be able to give money to you,” she said.

According to credit-scoring company FICO, a “good”  score lies between 670 and 739 points. A poor score is anything less than 580. Conversely, an exceptional score is anything above 800.

 

A life coach shares tips on dealing with failure



Benefits of a good score

The first and obvious benefit of maintaining a good credit score is that one is more easily able to access credit services. However, the benefits go beyond that.

“The law says people with a high score can get lower interest rates,” she said, adding that “when we borrow money from someone, they have the right to charge us interest rates which is for the risk they are taking with us.”

“If you have a high credit score, you will have to pay more for that loan but if you have a good score then you pay low-interest rates,” said Selesho.

Other benefits of maintaining a good credit score include more loan options and a higher credit limit.

 

Petrol expected to reach a record high in July



Maintaining a good score

Selesho explained that it “differs depending on what you’ve done and what kind of financial products you’ve got”.

She said that paying off a credit card timeously will enable one to obtain a good score quicker than other loans. This means being cognizant of deadlines and amounts owed.

“If you’re using your credit card well, you pay it on time [and] you pay the right percentage. What is most important with the credit card is that you know exactly how many days you have until you will have interest to pay. If you’re managing that well, a credit card normally gives you a good score quicker than other loans,” she said.

Selesho said scores are updated every three to six months, “depending on how much activity you have on your profile”.

“If you have a lot of activities, it takes three months. If you’ve got as little [activity] as possible, then up to a year.

Selesho said it might be better to pay a little bit extra each month in order to gain a better credit score. She said there are several websites one may visit to access their credit score.

Related Videos