There are few achievements that surpass the feeling of buying your first car, which, in most cases, is the greatest aspiration for graduates as they approach the point of starting a career. More than being a status symbol, owning a reliable car is an important mobility enabler in South Africa, particular in areas with erratic public transport, which can even be in established urban centres, as seen recently in Cape Town.
This makes owning a private vehicle a necessity for most South Africans, including young people for whom mobility can be the determining factor in getting that much coveted start up position. It is also why buying a car is one of the biggest purchases most people will ever make, almost always necessitating the need for assistance from a financial service provider (FSP) such as a bank.
Topics such as credit record and credit score thus become matters of great interest to young people when they learn about how banks and other FSPs use these tools to determine the extent to which they can extend credit to a customer. In simple terms, credit record refers to your entire credit history, including all the credit transactions you’ve ever concluded with a registered financial services provider. Credit score, on the other hand, is affected by your credit record and your reliability when it comes to paying back loans on time. This is what banks and other financial institutions use to determine how much credit you can be loaned and the related interest to charge.
This is why it is important for young people to learn about the advantages of having a good credit record and a good credit score, and how to start working towards building them.
One of the typical starting points for youth in South Africa when building a credit record, and hopefully a good credit score, is the popular retail store account. But in many cases, poor finance management sees young people either accumulate huge debt that they are unable to service, or they simply neglect the upkeep of their store accounts with regular payments as required. Sadly, before long, the situation reaches a point where the creditors involve their lawyers to recoup the outstanding funds. This can lead to the account holders being reported to one of the credit bureaus, resulting in a bad credit record and subsequently, a compromised credit score. Even older people can fall into this unfortunate situation, requiring the intervention of debt counsellors who typically advise indebted people to close their retail store accounts as a first step towards financial recovery.
So, as a young person seeking to build a good credit record, where should you start? Establishing a relationship with a financial institution is always a good starting point. Therefore, opening a credit card account can be a useful first step towards establishing a credit record. In addition to enabling you to buy now and pay later, credit cards often also come with additional benefits like reward points and various discounts at specified retailers and service providers. So, if used responsibly, and the required monthly minimum payments are consistently met, a credit card can be a useful tool in building a positive credit record.
When you are eventually ready to buy your first set of wheels, it’s important to choose a model that is within your affordability band. This will make it easier to afford the monthly loan repayments due to the bank. It’s also important to remember the other running costs associated with owning a vehicle, like insurance, fuel costs and other maintenance requirements. If well managed, your vehicle loan account can be a valuable reference for future instances when you might need to finance another big-ticket asset, like a house.
Where circumstances allow, you can approach WesBank to apply for vehicle finance despite not having a credit record at all. WesBank’s Graduate Finance product is specially designed to help young professionals to apply for vehicle finance without a credit score.
The criteria for this include:
- Having a degree or diploma obtained in the past three years
- Being under 31 years of age
- Being employed in a full-time job or have a letter of appointment to a full-time job that pays a minimum monthly salary of R7 500
- Being able to afford the monthly payments for your car
WesBank’s online affordability calculator takes the guess work out of determining whether you can afford your dream ride. Once you’ve determined your affordability standing, you can start the process of applying for finance to purchase your first car.
Vortex
Ian Fuhr – Sorbet Group: After 40 years as a serial entrepreneur, founder of Sorbet, Ian Fuhr, has learnt more than his fair share about business in multiple industries. In his 50\’s he decided to launch a new brand in an industry he wasn\’t familiar with, 13 years later the business is still going strong with more than 138 franchises. In 2015, Sorbet opened its first international salon in London. Dermalogica is an international brand, and South African brand Environ is in more than 60 countries with a firm foothold in the UK, which means consumers are aware of Sorbet\’s products.