Home Credit report How to establish and build a positive credit report

How to establish and build a positive credit report

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Meet Paul, a 23-year-old graduate who has just landed his first job and is looking to buy his first car. This is pretty much where Paul hits the wall because as a recent graduate, and even as a salaried person, he has no background in credit management, and therefore has no credit management background. credit score.

Credit providers will typically use your credit score to determine what type of lender you are and how risky you are in terms of paying off a loan or credit, which is why maintaining a good credit score – once you have one – is vital. Your credit score is based on how well you manage your debt and your repayment responsibility, including whether you consistently pay on time and at least the minimum payment due. If you have a non-existent credit score, chances are a lender will deny your loan / credit application because they don’t have a history on which to base their risk assessment.

How do I establish and develop my credit rating?

According to Gareth Levinsohn, business manager of Shapiro Shaik Defries and Associates, it takes 12 to 18 months to build a meaningful credit report, and you’ll need some sort of retail, cellular, or credit card account. store – interest or non-interest – to set this process in motion.

“As a rule of thumb, start with a very manageable interest-free credit facility that you can easily afford, and instead of paying cash, buy something using that facility. Make sure you make all of your installment payments on time each month and pay the minimum amount required or more each time. A mobile phone contract or a retail store account are good options. The condition is that you can afford the repayments and that you pay consistently – the goal is to demonstrate your maturity and responsibility in managing your credit, ”says Levinsohn.

Why Is It Important To Build Your Credit Score?

“As much as you hear the adage that ‘money is king’ – and which is a good currency to follow for consumer-style purchases – there are many big-ticket items that few people can afford to buy in Canada. cash – think of property, car, major appliances, higher education, etc. Most people will need a credit facility to be able to afford these purchases, especially considering that a house will take you around $ 20 years to pay off and a car about five years or more Your credit score and past credit behavior play a fundamental role in being able to qualify for such loans and will also set the terms and interest rates for which you are best eligible. the terms and interest rates you can expect to receive, ”says Levinsohn.

What is a good credit score?

Credit scores are generally rated on a scale of 0 to 1,000 as follows:

  • 767 – 999: Excellent
  • 681 – 766: Good
  • 614 – 680: Favorable
  • 583 – 613: Medium
  • 527 – 582: below average
  • 487 – 526: Unfavorable
  • 0 – 486: poor

Your credit score is calculated by a credit bureau using all of your credit profile details, with your score reflecting a summary of all your financial decisions and behaviors as you begin to transact with banks, credit providers, etc. retailers, etc.

What factors influence your credit score?

Missing or late payments will negatively affect your credit score. Even if you double the payments the next month to catch up, the inconsistent payments will show up. The same goes for unfavorable legal information – although this information is erased as soon as the account is settled, the negative repayment history remains on your profile for several years.

Multiple credit applications and high credit utilization – a sudden increase in credit applications over a short period of time – will cause your credit profile to come up as a red flag, as will consistently high credit limit use. Try to limit your consumption to less than 50% and ideally 35% of your credit limit. Balances consistently close to your limit suggest that you are living on credit to get by. Any request for credit will be considered for up to two years.

If you have a number of unused credit facilities, consider closing some of them. Having a lot of unused credit can lead to a large debt balance if you decide to use them all at once.

A court ruling or a blacklist will have a negative impact on your score.

It takes six years to calculate your credit score, so a shorter credit history than that will lower your score. Likewise, this means that any history of missed or late payments will also persist for six years!

If you are having payment difficulties, be proactive and make arrangements with the credit provider. We may be living in a difficult time of a pandemic, however, the fact remains that your debt is not going to go away. Rather, approach and negotiate proactively with creditors and lenders. If you are contacted by a collection agent, explain your situation so that they can work with you to find a solution or make other payment arrangements, if necessary. But don’t ignore the calls. Failure to respond from you will simply see it move to the legal stage, which will become increasingly difficult and negatively impact your credit rating and future personal financial health. If you’re in a real bind, consider a debt consolidation process where professionals can help and negotiate on your behalf and make sure you rehabilitate yourself and avoid legal action.

Regularly check your credit report through the various bureaus that provide consumers with a free annual credit report. Check that all of the details are indeed correct – many cases of identity theft and fraud are detected this way and can have a serious impact on your credit score and financial health if left undetected. If your identity or passport documents are lost or stolen, report it to SA Fraud Prevention Services who will enter your details into their database to notify their members that your identity has been compromised and that they must be more careful when confirming your identity, including credit providers.

Improvements in your credit score will usually start to show within three months of consistent behavior and your score should be updated accordingly. However, there really isn’t a set time frame for this and it’s usually determined by how long it takes you to reflect disciplined credit habits and reduce your debt and usage to healthier levels.

Serious credit impairments such as late payments, default judgments, insolvency, and lawsuits can remain on your credit report for up to 10 years.

“Considering how important your positive credit score is to your current and future financial security and well-being, there is every reason to adopt healthier credit behavior and management since opening your first account and treating your credit score like the gold that it is, ”says Levinsohn.

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