How to become creditworthy

The new generation is entering the business world and taking on the responsibilities of adulthood, which sometimes includes opening a credit account at a store.

With incomes not growing in line with inflation, most of us have to rely on credit to stay afloat, and for younger adults who are entering the working world, it is difficult to apply for the credit needed. And even if we manage to get the credit, using that credit responsibly is the only way to always have access to it.

Here are some tips from Jeannine Naudé Viljoen, Head of Legal, TransUnion Africa, on how to use your credit responsibly and some pitfalls to avoid so that your application for credit isn’t denied:

•Too many loan/ credit applications: There is no problem in opening a new credit card account, or a credit account at stores. But opening two or more in a short period of time might lead the next lender you apply to to think that you are in (or are going to be in) financial difficulties. It might also decrease your chances of approval if you apply for a loan at your bank.

•Your debt or someone else’s debt: If you sign surety on a student loans (yours or someone else’s), or even a home loan, that debt can get you into trouble if you (or the person you signed for) do not meet the payments. This will lead to negative results on your own future applications for credit.

•Hard credit enquiries: Every time you apply for credit, the lender will request a credit report on you – something known in the trade as a ‘hard’ enquiry. Many people don’t realise that too many hard enquiries to check your credit can negatively impact your credit score, or that they can often come from unexpected sources, like applying for a new cellphone account or requesting a credit limit increase. Make sure you only ask for credit when it’s absolutely necessary, to avoid dragging down your current score and prevent you from building your score for the future. It is important to note that requesting your own credit report is not considered a hard enquiry, and therefore it has no effect on your credit score.

You can access your TransUnion Credit report once a year, for free. That way, you know the status of your credit, and can take the necessary steps to build it up before a big purchase.