SANELE DLAMINI

Every week Perdeby takes a look at something you should have learned at school to assist you in day-to-day life. This week, we take a look on how to build and maintain a good credit score.

Credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. This might sound straightforward and good, but what exactly is that “trust” and who needs to have it?  This is something that can be tricky and hard to establish. You may have come across people who are advising that you avoid anything to do with credit. However, it is not a difficult concept, and the only struggle with it is that it is intangible. However, it can be built and managed.

 

Let’s list some of the things that credit can get you:

 

A house

In a form of a bond, which you repay later. This will be determined by your income.

 

A loan

To buy assets, or to finance your business or even your studies.

 

A car

It is highly advised that you make a deposit instead and pay monthly instalments. Sometimes if it’s an emergency and you are disciplined when it comes to finances, you may apply through your bank.

 

Clothes and furniture

This is also not advised. You should only do this if you have no other choice and is a matter of urgency. Hopefully by the end of this article, you will be less inclined to apply for and use store credit.

Now, at our age, it is time to start thinking about building the trust, which is a good credit score. Simply because you are considered to be a young adult and soon after you land a paying job, you will be required to prove that you have purchasing power and a good record of payments, that’s where credit scores comes in. In this article, we will explore a few simple things you could do build up and maintain a good credit score.

 

1.      Apply for a secure credit card

It’s easier when you can get a co-signer who has already established a good record. If not, you need to be careful by applying for one with a low limit. This should not get you carried away and think you have massive buying power.

2.      Keep your credit utilization low  

Use it only for emergencies such as getting small groceries, petrol or to withdraw emergency transport money (not more than R200) per month. Remember, the bank and other credit bearers have access to these transactions and will use this to decide what you consider an emergency and priority.

3.      Debit orders

For small things such as cell phone accounts, car or laptop insurance. If your parents are already paying for these, rather ask them transfer the money into your account so as to deduct straight from it.

4.      Fixed savings

You may be tempted to blow up all your income, but if you can transfer an amount of R50 to R200 per month to a fixed savings account linked to your account, you’ll be generating a nice monthly or yearly interest, and creating a good name for yourself. And in these hard times, savings is highly encouraged, so you can afford many things in the future, including good credit.

5.      Make 100% of your payments on time

You need to prioritise your bills, especially store accounts as these can easily mess up your credit score. If you’re not so big on clothes and dressing up, try avoiding applying for a store account.

6.      Keep accounts open for as long as possible

ABSA, Nedbank, FNB and Standard Bank have options of accounts that you can grow with you.

 

A major part of building a good credit score, is being smart with your money. Doing this requires real discipline and full dedication to your main priorities. It is best to decide what kind of liability and reputation you want haunting you for the rest of your life, so make smart and informed financial choices.

 

Image: Sally Hartzenberg