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Good Credit Puts Money in Your Pocket!

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Many people do not know about the credit scoring system or their credit score until they attempt to take out a loan to start a business or make a major purchase. A credit score is usually a three-digit number that lenders like Karibu Microfinance use to help them decide whether you get a credit facility and the interest rate you are charged for this credit. The score is a picture of you as a credit risk to the lender at the time of your application

Now, you probably are wondering “Where do I stand?” Here is what each component says about you:

  • Payment History details your track record of paying back your debts on time. This component encompasses your payments on credit cards, installment loans such as automobile biashara loans or student loans and mortgages. A history of prompt payments of at least the minimum amount due helps your score. Late or missed payments hurt your score.
  • Amounts Owed reveals how deeply in debt you are and contributes to determining if you can handle what you owe. If you have high outstanding balances or are nearly “maxed out” on your credit facility, your credit score will be negatively affected. Paying down an installment loan is looked upon with favor and your payment pattern demonstrates responsible debt management, which favorably affects your credit score.
  • Length of Credit History refers to how long you have had and used credit. The longer your history of responsible credit management, the better your score will be because lenders have a better opportunity to see your repayment pattern. If you have paid on time, every time, then you will look particularly good in this area.
  • Type of Credit concerns the “mix” of credit you access. You do not have to have each type of account. Instead, this factor considers the various types of credit you have and whether you use that credit appropriately. For example, using a credit card to purchase an expensive holiday could hurt your score.
  • New Credit suggests that you have or are about to take on more debt. Opening many credit accounts in a short amount of time can be riskier, especially for people who do not have a long-established credit history. Each time you apply for a new line of credit, that application counts as an inquiry or a “hard” hit. By contrast, applying for numerous loans in a short period of time will count as multiple hard hits and potentially lower your score. “Soft” hits—including your personal request for your credit report, requests from lenders to make you “pre-approved” credit offers and those coming from employers -will not affect your score.

Good credit management leads to higher credit scores, which in turn lowers your cost to borrow.

 Living within your means, using debt wisely and paying all bills on time every time are smart financial moves. They help improve your credit score, reduce the amount you pay for the money you borrow and put more money in your pocket to save and invest

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