16 Sep
BUILDING A HEALTHY CREDIT SCORE DESPITE COVID-19
Have you been worrying about your finances since the COVID-19 pandemic began? If you have recently lost your job or you are just struggling financially, your number one priority is to make sure your basic needs are met, and you stay as debt-free as possible.
In as much as many individuals and businesses try to get back on their feet, there will be an increased need for access to finance to stay afloat and attend to pressing needs. Lenders shall process loan requests by analysing the risks associated with each applicant through credit scores and credit reports amongst other tools. If you have an existing credit obligation, it is pertinent to approach your lender to restructure your loans, should this be necessary. This is to ensure that this does not negatively impact your credit score or report. Keeping your credit score heathy, is very crucial if one is to enjoy any form of credit either in cash or for purchase on credit, for business or personal needs.
So, what is your credit score? Your CRC Score shows the quality of your credit status, whether it is excellent, good, average or poor, using a 3-digit number ranging from 300 to 850 (300 being the lowest and 850 the highest). CRC Score is powered by Fair Isaac Corporation (FICO). Depending on what your rating is, lenders can be encouraged or discouraged when making lending decisions regarding your credit application.
Certain features are considered in generating your Credit Score, namely:
- Payment History 35%
- Amount Owed 30%
- Length of Credit 15%
- New Credit 10%
- Credit Mix 10%
Thus, these areas must be taken into consideration, particularly your repayment history and amount owned which account for a total of 65% of all the parameters considered when generating your credit score. Building a healthy credit score might seem like a herculean task considering the recent challenges created by the Covid-19 pandemic. However, there are some basic steps you can take to build and maintain a high credit score;
- Adopt an automatic loan payment: This enhances your payment history, which is the most important in your credit scoring. An auto-payment would help you to avoid missing agreed dates of payment.
- Work on credit utilisation ratio: To build a good credit score, it is vital you have a low credit utilization ratio, usually below 30% of your credit limit. To achieve this, cut down on expenses and have a budget.
- Limit applying for new lines for credit: This would limit the hard inquiries done on your credit information which could affect your score.
- Add credit mix strategically: A well informed addition of certain credit types to what is currently enjoyed helps to improve your credit mix, and in turn boosting your score. Please note, care must be taken not to access credit that one cannot pay back.
- Check your Credit Report: You can apply for your credit report on the CRC Credit Bureau website or via the CRC Mobile App. Ensure that your report is up-to-date, and if you find any error, file a dispute to have them corrected.
- Be patient: Building a good credit score takes a while. An excellent credit score is a culmination of many years of deliberate good financial behaviour.
- Approach your lender to restructure existing loans.
If these steps are taken swiftly and consistently, you are on your way to taking back control of your financial lives especially during these special times and circumstances. It also shows that you are prepared to access as many credit facilities as are made available, either as an individual or business owner.
