Having plied his trade in the finance industry for 20 years (during which time he worked for Accenture, Discovery, FNB and Wesbank), Alan Quinn has an intimate understanding of vehicle finance. Here he weighs in on why it's so important to have a good credit score when you're seeking approval for vehicle finance.
Firstly, you probably have a credit score already – almost all South African adults have one – you just don't know what it is! However, your credit score is a critical piece of information that impacts whether you can get credit to buy a car. It is a very good idea to find out what your credit score is and make sure it is good enough that you can get the very best deal when you want to buy the car of your dreams.
What exactly is a credit score? How will it affect your car finance deal?
When you apply for credit for a car, you are asking a bank to lend you hundreds of thousands of Rands over many years. That means you are promising to pay the bank a significant sum of money every month for, on average, 6 years! What the bank wants to know is whether it can trust you to repay your loan. Your credit score is basically a measure that a bank can use to work out whether it can trust you.
Who calculates your credit score?
Your credit score is calculated by a Credit Bureau. A Credit Bureau has spent years tracking you by talking to all the banks as well as various lenders. If you have a store card at Truworths, for example, and if you have a DStv, Vodacom or MTN account, the bureau knows about all of these. The bureau gets data from all of these places and works out how good you are at paying the bills you have every month right now. They then do a lot of fancy mathematics to estimate how good you will be at paying any new accounts you might want in the future. The result of all that "fancy maths" is your Credit Score.
Why your credit score is important to your vehicle loan?
Are you thinking about buying a car? Perhaps you're researching a car that you have your eye on; perhaps you've even put through a lead on a car you'd like to test drive. If that's the case, it's likely that you will soon find a car that suits your requirements (and, ostensibly, your budget) and sign an offer to purchase (OTP) at a dealership, after which its staff will help you to fill in a vehicle-finance application.
They will send this application to ALL the banks, every bank you apply to will get your credit score from the bureau they use. The credit score they get is a MAJOR factor in the decision they make. That is why it is important that you know what it is. Only 30% of car-finance applications are currently being approved. That means 70% of applicants see their dreams of buying a car (new or used) dashed.
How do I find out what my credit score is?
Therefore, before you set off on your car-shopping journey, it's best to know whether you're likely to be approved for vehicle finance before you set your heart on a prospective purchase (irrespective of whether you believe you can afford the monthly repayments for that vehicle). To help you shed light on the matter, Cars.co.za has partnered with a company called Just Money, which will show you your credit score for free and provide some useful information about what that score will mean when you apply for different types of credit, plus good advice about how to improve that score.
Important note: There are several credit bureaus in South Africa and they all employ really smart mathematicians, but these number-crunching experts do not always agree with each other! Therefore, some bureaus will give you a better score than others. Different Banks use different credit bureaus – that is why your dealership will send it to all the banks in order to try to get the best result for you.
Ready to move to the next step? Here's how to get a good credit score.