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Taking the step to getting credit

Posted: 13 May 2022

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What are the kinds of questions you should ask yourself when considering taking out secured credit or unsecured credit?

Here are a few questions you can ask yourself:

  • Do I really need the thing I want? This is especially important for unsecured credit. It’s easy to swipe a credit or retail card for luxuries you can’t really afford. For secured credit, most people usually know that they want and need to buy a house or a car.
  • Irrespective of the purpose for which you want or need credit, it comes down to: Can you pay the amount back over the time specified? Is there room in your budget? A lender will look at your affordability to establish this, and if they determine that you can’t afford it, your application could be denied.
  • Depending on your circumstances, you may want to ask yourself if your job situation is stable since losing your job can directly impact your ability to pay your debt.
  • For some credit, such as a vehicle and asset finance or home loans, you may need to pay a deposit: Do you have any means to pay a deposit? Do you have some money that can be put down to lower the amount borrowed?
  • Do you have any collateral or assets that you can put up in case you can’t afford to repay? Collateral can be anything from a house to a car or other objects of value that you can sell if you can’t pay the loan.
  • Are you creditworthy? Do you repay your loans? This is another big factor in the lending decision; if you have a history of not paying your current accounts, it’s less likely that a lender will lend to you because they may see you as a risk.
  • What is the cost of the credit you want? Credit costs money. To take out credit, there will be costs such as initiation fees, credit insurance costs, and of course, interest. You may think you’re borrowing R10 000, but in reality, after the costs and interest, you may be paying back more. Keep in mind that the interest on unsecured is often much higher than the interest on secured credit.
  • During the loan application process, it’s also valuable to ask: “Does my credit insurance cover me?”. Make sure that your credit insurance covers the necessary conditions, such as death or illness. Some don’t cover the loss of salary. So make sure you find out.

Remember when taking out credit

Taking out credit is an important event to consider, no matter how small the credit amount is. It's too easy to fall into bad habits, which is why taking out and using credit takes responsibility. These questions will help you weigh up your decision.

A good idea is to review your credit report. This will show you where you are currently standing with your credit accounts and can contribute to your decision.

You can get your full free credit report via Experian's My Credit Check online platform.

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