If you have a credit score of zero, you may be reluctant to start building it, for fear of it being average for a time. However, is sustaining a credit score of zero a sensible strategy?
To better understand this, we have a look at what impacts your credit score, and we consider whether it’s better to work towards building your score, or to keep it at zero.
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What impacts your credit score?
According to Annelene Dippenaar, chief legal and compliance officer at Experian Africa, to understand the difference between an average- and zero credit score, it’s important to first understand what affects the metric.
There are a number of factors on your credit report that shape your credit score. Dippenaar highlights the following.
- How well you pay your accounts
- Your total debt
- Types of accounts held
- Number of accounts
- High usage of available revolving credit
- Late or missed payments
- Age of accounts
- Court orders, administration orders, and judgments
- Debt review
- Multiple enquiries for credit within a short period of time
Average credit score or a credit score of zero?
One of the biggest contributors to your credit score calculation, Dippenaar says, is your payment history. She explains that this is indicative of the risk associated with lending money to you.
“If you have a credit score of zero, this usually means that there is not sufficient credit history from which to calculate your score. In the credit industry, those that do not have enough credit history are referred to as ‘thin files’,” says Dippenaar.
“It can be difficult for thin-file consumers to get credit because the lender cannot determine the risk associated with lending to them. It’s important that a consumer builds up their credit history as soon as possible,” she says.
According to Kriben Reddy, vice president of TransUnion Consumer, the same applies to an average credit score. In this instance too, you have some work to do to improve your credit risk rating.
Nonetheless, Dippenaar says that a consumer with an average credit score could find it easier to get credit because they have a credit history.
“But this isn’t the only factor in a lender’s decision. Each lender has a different way of calculating a credit score depending on their business needs. Additionally, they have other business rules that contribute to their decisions,” says Dippenaar.
Reddy adds that lenders also consider affordability, which is the amount of money you have left after your expenses have been paid, and whether you’re overindebted.
Ultimately, Dippenaar believes that an average credit score may help you get credit more easily than a credit score of zero. It is therefore in your best interest to start building your score today.
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