Why you need a credit historySince you likely have no credit history, lenders might be sceptical about giving you a loan. This is because you are seen as a high-risk offset: someone who has a bad or no credit record. Lenders will categorise you as they are unsure of how you will handle debt. Debt and credit are a tricky thing because, on the one hand, you don’t want to fall into a debt trap. But on the other hand, you need debt to have a good credit record. Building a good credit record is an important financial skill you need to work on. Your credit score can be an effective tool when purchasing a house, car or being approved for a credit card. And, when you plan on purchasing items, you will get the best deal with a low-interest rate. But more importantly, you need to work on it from a young age. Planning will also help you learn to make the right financial steps for your future self as well. So, if you’re looking for loans as a young professional and how to build credit, then continue reading below. There are several ways that you can build credit, but you need to understand how it works. If you don’t understand how credit works, you might find yourself with a hefty credit bill.
How you can build your credit scoreFirst things first, before applying for finance, you need to have a good credit score. It may be challenging to increase it in the beginning, but it is achievable. An effortless way for you to build your score is by opening up a clothing store account or a credit card. This is an effective way people build up their score for things like a vehicle or personal loan. To improve your score on an existing account, you can ask for a credit limit increase. This does not mean that you need to use the money. Instead, this money will help you boost your credit utilisation ratio. Credit utilisation is when the credit bureau looks at how much credit you have and how much you have spent. Your goal is only to spend 30 percent or less of that credit amount. That way, you are proving that you aren’t dependent on credit and that you’re financially stable. If you’re curious about your score, you can find your credit score from four popular credit bureau’s, Experian, TransUnion, CompuScan and XDS.
Types of loans you can getNow that you have an idea of how you can build a credit score, you can look at loans offerings you can qualify for.
Personal loansAs a young professional, you can apply for a personal loan – many registered credit providers offer personal loans in South Africa. But applying for a loan doesn’t guarantee a loan. Lenders get several applications on a daily basis, so you need to ensure you stand out. With a personal loan, you can afford to do the things you have always wanted to do. For example, you can complete home renovations, go on a vacation or pay for your studies.
Vehicle financeAnother loan that you can get as a young professional is vehicle finance. Now, you can get your dream vehicle, and pay it off in monthly instalments. Many lenders look at your affordability to see what vehicle you can afford. And, you will only qualify for a vehicle that is within your budget, making it easier for you to make your loan repayments on time. Authorised financial services also have graduate finance that allows you to purchase a vehicle with no credit history. This is beneficial as lenders understand the need to own a car, and they understand that young professionals don’t necessarily have a credit score.
Leisure financeAs a young professional, you can also apply for leisure finance. This type of financing is for recreational assets – anything from a boat to a jet ski, caravan and bicycle. If you’re an adventure seeker looking to get a new bicycle, then leisure finance is the best route to go.
How to get pre-selected for financeFor you to stand out and get the loan amount you need, you need to have a good credit score. Having a good credit score will heighten your chances and will ensure that you get a good deal. Besides your credit score, there are several other things that can help you get pre-selected. For instance, you need to think about what the lender expects from you and how you can prove that they can trust you to meet your monthly repayments. Lenders need you to provide the following:
- Proof of income and the bank account details where you get your salary.
- A clear credit record.
- Three months of banking statements.
- Proof of address.
- Identification document.