Let’s face it, money makes the world go round. Whether you want to buy a house, a car or just pay for your next lunch using a credit card; you are going to need a lender to borrow from. This means you must be worthy of the line of credit you are requesting.
Your creditworthiness is rated using a three-digit number ranging from 300 (unfavourable) to 850 (excellent) that is assigned to you by the credit bureaus. In Namibia, there are two registered credit bureaus Transunion and Compuscan, where you can request a free credit report form every 12 months.
Even if you’re not in the market for a loan, good credit can have a major impact on other aspects of your life. Landlords, insurers and employers frequently use credit information as a way to see if the people they are dealing with are reliable and responsible. Bad credit can suggest you’re a risky bet. Good credit can signify that your financial situation and the rest of your life is on the right track.
So, take the time to review and improve your credit score and enjoy the following benefits.
Better chance of credit/loan approval
Having an excellent credit score doesn’t guarantee approval, because lenders still consider other factors such as your income and current debt level. However, a good credit score increases your chances of being approved for new credit and makes the process quicker.
Lower interest rates
The interest rate is the cost of borrowing money. If you have a good credit score, you will most likely be offered a lower rate of interest and pay lower finance charges on credit and loan balances. The interest rate directly affects how much money you end up paying back to the lender and for how long. So, the lower the interest rate, the sooner you’ll pay off the debt, and the less money you will use to service the debt.
Even a small difference in the interest rate can translate into thousands of Namibian dollars over the lifetime of a loan. Borrowers with the highest credit scores are generally able to secure the lowest interest rates available at a given time.
For example, if you get a personal loan of N$100 000 at 25% over five years, you will pay back N$176 108. If you can get an interest rate of 20% on the same loan, you end up paying back N$158 963, saving you N$17 145.
Negotiating power
A good credit score allows you to shop around and compare rates more effectively and gives you leverage to negotiate a lower interest rate on a credit card or a new loan. You can do this by getting quotes from multiple lenders and pit them against each other to see if different lenders can offer you better terms, either by lowering the interest or waiving certain fees.
However, if you have a low credit score, creditors are unlikely to budge on loan terms, and you won’t have other credit offers or options.
Access to jobs
Certain jobs, such as those that require you to work with money require a personal credit check. This is to make sure that you’re capable of handling finances, or that you’re not vulnerable to bribery because of financial problems. If you have a poor credit score, you may not qualify for certain positions.
*Thembi Kandanga is a financial planner and coach. She runs her own financial coaching business (FinWellness Solutions) and creates personal finance content on YouTube, Instagram and Twitter.