When you apply for a Personal Loan, credit card or retail account, some of the biggest factors that lenders take into consideration when calculating your creditworthiness are your previous payment behaviour and the number of accounts you have. What you may not be aware of is that not every financial activity will necessarily damage or improve your credit score.
Your credit score is a rating, usually between 0 and 999, used by potential lenders to assess your capability to repay a loan. Before extending you any form of credit, lenders usually request your credit report from the credit bureaus. Based on your credit history reflected in the report, the lender uses a mathematical model to determine a score that indicates whether you qualify for credit and at what interest rate.
A score between 614 and 999, shows lenders that the probability of you paying them back on time is higher, and means you have a better chance of getting your application approved. A score between 0 and 582 indicates that you are more likely to default on a loan, in which case you will need to improve your credit risk rating.
Here are five monthly bills and financial obligations that you won’t have to sweat over as you take steps to improve a bad score or maintain an excellent rating.
When applying for a Personal Loan or credit card, you will always be asked to provide proof of income via your salary slip. Lenders consider your income to assess your affordably – your salary has no other relevance in the process. The lender may decline your application or make you a lower offer but the amount you earn per month will never affect your credit score.
Late or non-payment of rent may not leave a negative mark against a person’s credit profile but you can find yourself being served with an eviction notice. Similarly, if you’ve been paying rent on time, do not expect your credit rating to soar. A landlord cannot report rental payment behaviour to the credit bureaus, however, if they obtain a debt judgement against you it will be picked up by the agencies.
Debit card payments
Given the convenience of paying with a debit card, many people are swiping nowadays. While debit cards sometimes carry the logo of credit card companies, making card purchases does not affect your score. Credit cards are essentially a loan you have on purchases, which you will need to repay, but with a debit card, you use your personal savings. The only way your debit card could impact your credit score is if it is linked to an overdraft facility. Since you are using the bank’s money for your transactions, you must expect to pay for this service.
Insurance and municipal accounts
Being on time or late with your utility bills won’t make a difference to your credit score but if you fall behind on your water or electricity payments, the municipality might cut off the supply and place your account with a debt collection agency, and this would appear on the radar of credit bureaus. The same goes for insurance companies, however, if you fail to pay your Car Insurance premiums or Medical Aid for an extended period, the insurance company will likely cancel your policy rather than hand you over to collections agencies and you may not be covered in the unfortunate event of an accident.
If you have not been fulfilling your child support duties, it will not be noted in your credit report unless the custodial parent turns to a collections agency for help. Failure to make child support payments in accordance with the amounts and dates specified in the child support court order can have adverse consequences such as being arrested and jailed.
Consumers spend a lot of time figuring out what sort of financial activities credit bureaus pay attention to. It’s important, as these things usually have a big impact on one’s ability to receive future credit. While there’s a lot that go into your credit score, credit agencies don’t care about, or simply do not have access to, everything. This does not mean that failing your obligations will not impact you in some way. For example, if your Car Insurance is involuntary cancelled, you might be stuck with out of pocket expenses if you get in an accident.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice.