Applying for vehicle finance: The importance of getting and maintaining an acceptable credit score

Given South Africa’s changing economic conditions, household budgets are under pressure to meet their financial obligations. This could lead to changes in individual credit profiles. We ask Absa’s Fulu Mandane and VW Hatfield’s Vleis Manyama to tell us more about how these changes could affect your credit score and what you can do to protect your credit profile.

What is a credit score?

A credit score indicates your ability to undertake credit, and your ability to honour the accompanying terms and conditions. Banks and other lending institutions use credit scores as part of the credit assessment process to decide how financially dependable customers are and whether or not to grant them credit. A credit score is primarily based on information on a credit report, information typically sourced from credit bureaus.

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Factors that influence your credit score include:

  • The length of your credit history
  • The number and type of your credit products
  • How you have managed your loans and credit facilities in the past
  • Your payment history (that is, whether or not you pay on time)

Why is a good credit score important?

Maintaining a good credit score shows lenders that you use credit responsibly and are more likely to pay back the money you want to borrow.

Your credit score affects the offer you receive on your vehicle finance application. A poor score can make it difficult for you to qualify for a loan, or you may end up paying higher interest rates.

Which factors have a negative impact on your credit score?

Factors that play a role include:

  • Your current debt and what you owe creditors
  • Limited or no credit history
  • Defaults on payments, whether you have been in arrears, or had legal proceedings against you
  • Overspending on your credit limits (for example on your credit card)

What steps can you take to improve your credit score? 

  • It’s important to review your budget and ensure there are sufficient surplus funds. This will help you accommodate an interest rate increase which would impact monthly loan repayments if you  opted for a variable interest rate. (A variable interest rate fluctuates over the term of the loan in line with the prime lending rate.)
  • Consider an automated debit order known as DebiCheck which is linked to your salary date so that there’s an automatic payment to the bank immediately after your salary reflects in your account. This could help prevent your debit order from returning unpaid. Missing a payment on your vehicle, for example, will affect your credit record.
  • Keep expenses to a minimum and expenditure low to accommodate economic downturns.
  • Increase your savings pool for unexpected expenses.
  • Reduce take-up of additional credit to allow for more surplus funds to pay for existing credit or save for unexpected expenses.
  • Manage your credit score efficiently and ensure all debts are repaid timeously to prevent a negative impact on your credit profile.
  • Contact the bank for assistance if you encounter financial distress.

To apply for Absa Vehicle Finance, visit our Absa Vehicle Finance section.

For more information on how you can become a better consumer, lookout for our  Street Smart series.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.