When you’re spending money, be that on credit cards or out of your current account, and thinking about how to manage your budget and plan any debt repayments you need to make, are you giving due thought and consideration to how this might affect your future?
Many Kenyans will recognise this mindset, however if you are not mindful about your spending habits this can have a huge influence on your credit rating, which in turn could affect your ability to get a personal loan or a mortgage in the future. While your credit rating may not be affected to the extent that you would be turned down for credit, your spending habits now can even influence the terms you are offered when you’re accepted.
A difference of even a handful of percentage points in your interest rate can be significant. And may be excessive if calculated over the remaining period of the loan.
Thankfully, you can avoid this by being careful in respect of your spending habits to ensure you get the best interest rates whenever you apply for credit in the future.
What are the spending habits you need to manage too avoid affecting your credit rating too much?
Making Late Payments
Does making a late payment on a credit card or a personal loan really matter too much? Beyond the inconvenience of attracting late payment charges, you were able to get yourself back up to date and on track quickly, so what’s the problem?
First, we must acknowledge that creditors can’t put a notice of late payment on your credit file until. A period of time has lapsed. Also, it is a misconception that if you make one late payment in your life will that cause you harm?
However, you ought to remember:
- If you make repeated late payments – after a period of time they may appear as a default on your credit file – these give a perception of financial stress and will affect your credit score.
- Even late payments made within two weeks that don’t appear on your credit report may have an indirect influence on your ability to obtain credit. If you make consistent late payments on a credit card, for example, then your provider may choose to reduce your credit limit. Again, lenders who check your credit report will see your credit limit has been reduced, which may indicate problems.
Late payments don’t just hurt you with ‘regular’ credit types either. Even making regular late payments against your utility bill and mobile phone contract can affect your credit file.
When planning your budget make sure all of your regular payments are set up to be made on time. Wherever you can, remove any possibility of forgetting to make payments by setting up direct debits to take care of these.
emember that if late payments become serious credit infringements and you end up with defaults, court judgements, or even bankruptcies on your credit file, this could be catastrophic and may leave you unable to obtain credit. .
Maxing Out Your Credit Accounts
When you go shopping, particularly for things you don’t really need, do you simply pay with your credit card without thinking about it?
If you regularly buy things on your credit card but repay the full balance every month, then this is fine.
However, if your credit cards are at their limit and you’re only making the minimum repayment each month, this could be having a hugely detrimental effect on your credit score. This is because you are seen to already have a significant exposure to debt, and as well as lowering your credit score responsible lenders may be wary of giving you any more credit.
Think again before buying things on a credit card if you know your balance is growing; think of the money you may save in interest payments too!
Applying for More Credit
You have something you want to buy, so you decide to apply for more credit, whether that’s a personal loan or a credit card.
This can affect you in three ways:
- If you are declined for credit and start “shopping around,” these repeated searches will lower your credit score.
- The more credit accounts you have open, the bigger your potential exposure to debt. If you have access to thousands of dollars’ worth of credit you don’t need, then apply for another type of credit, this can still represent a risk, as while you may be managing now, what if you start spending and suddenly you’re maxed out?
- As in the earlier example, even if you’re accepted for credit this time, you can actually damage your credit score if you then max out your new credit card and start making just the minimum repayments.
If you’re a Company Director
Not all lenders will look for this, but if you have been the director of a company that has had debt problems or has been liquidated, this information will be available on your credit report, though may not directly affect your credit score. Even though from a legal perspective you and your company are separate entities, your actions as a company director can still impact whether you can access the credit you need at a competitive interest rate in the future.
Make Sure Your Spending Habits Affect Your Credit Rating in a Positive Way
Make your repayments on time, don’t have large balances on several different credit accounts, and don’t apply for credit when you don’t need to. If you manage your spending habits correctly they will affect your credit rating in a positive way, and ensure that you are able to be accepted for various types of credit in future.
SOURCE: NOW FINANCE