debt management

What is a credit score?

We have all seen the ads with the two guys sitting on the couch watching TV and discussing credit scores.

Your credit score is an indicator of how much of a risk any lender will have to take by lending you money or providing you with finance for any goods or services. It is determined by how well you manage your debt by making the required payments at the required intervals. It also takes into account any debit orders that may have been returned by your bank for insufficient funds. Basically, it is essential that you manage your finances and meet your contractual obligations in order to achieve a good credit score.

Your credit Score is something that you really need to take care of. It affects your ability not only to get credit, but the interest rate you are charged on credit agreements. Having a very Good credit score can make a significant difference to the cost of an item you buy on credit, and the longer the credit period, the greater the affect. Many employers will check a prospective employee’s credit score to get an idea of how disciplined you are with money or any other reason they may have.

With this in mind, a very good credit score can work in your favour by enabling you to get sub-prime rates on certain items like cars and home loans. A 1/2 percent difference on a large sum over many years can amount to many hundreds of thousands being saved by guarding your credit record.

Is it legal for employers to check your credit score?

The NCA (National credit act) allows employers to check a prospective employees credit rating if they are applying for a position which requires the prospect to handle money/finances or honesty. This it seems is however being abused where many employers are checking credit ratings for almost every type of position.

Here again, looking after your credit score could mean the difference between getting a job and being side-lined. This on it’s own is a good enough incentive to pay special attention to your credit score.

Debt management

Debt management will most certainly affect your credit score in that you will be paying less than the recommended amount of the loan agreements. Be very careful when you elect to go into debt management and try as far as possible to renegotiate with your creditors personally before electing for debt management.

Remember that the longer you stretch out your repayments, the more it is going to cost you in fees and interest and any future loans you take out will be at a premium rate, sometimes in excess of 10% or even 15% above prime. The reason for this is that you are now a credit risk. When you enter a debt management program, a debt counsellor will sit with you to determine the extent of your debt. It is important to be 100% honest with your debt counsellor, including any debts that may not be to a financial institution, but to friends, family or other lenders. The debt counsellor will take the total sum of all of your debt, the total of your income less your absolute minimum living expenses and come up with a repayment program that is on a reduced repayment basis with each creditor. In some cases and where it is possible, a single credit facility is established covering all of your debt, paying off the individual creditors and then making a single payment over a longer period.

There are many ways to skin a cat asd the saying goes and you would be well advised to be honest with yourself when assessing your debt. If you have a one account facility, an access bond or the ability to consolidate your debt, you should consider this as an option. The real question becomes, can you be disciplined enough to manage the single account and not get into any further debt until your position has improved and you have paid down your consolidated debt.

The most important factor to consider is to take your credit score very seriously. Once you have a low score, it is extremely difficult to get it back up again.

Use these loan and investment calculators to see what effect making incresed payments on loans