Managing revolving credit utilisation for financial wellbeing

In an era where financial flexibility plays a crucial role in managing expenses and achieving financial goals, revolving credit facility has emerged as a powerful tool for individuals and businesses.

Revolving credit refers to a line of credit extended by financial institutions, allowing borrowers to access funds up to a certain limit and repay them over time with variable interest rates.

While revolving credit offers a convenience and flexibility to access funds, how it is utilised can significantly impact an individual’s financial health and creditworthiness.

The utilisation of revolving credit among South African consumers surged to its highest levels from April 2010, as reported by TransUnion’s 2022 SA Consumer Credit Index.

This increase can be attributed to the economic strain caused by rising interest rates and a flagging job market, resulting in consumers relying more on revolving credit to manage expenses, and to bridge financial gaps.

The significance of credit utilisation:

According to Ayanda Ndimande, head of business development at Sanlam Retail Credit, credit utilisation plays a crucial role in determining creditworthiness, and accounts for 30% of an individual’s credit score.

It is vital to adopt a thoughtful approach to debt management that aligns with overall financial plans and goals. By keeping credit utilisation low, individuals enhance their chances of qualifying for future credit opportunities and of maintaining a positive credit standing, according to Ndimande.

Ndimande explains: “Your credit utilisation rate contributes 30% to your credit score, which makes it a critical consideration in determining your creditworthiness. Keeping your use of credit low is essential to qualify for future credit.

“It’s vital to manage your debt through a considered approach that fits with your holistic financial plan and goals.”

A comprehensive understanding of the concept of revolving credit utilisation is important for individuals whose aim is to navigate the intricacies of personal finance successfully.

When employed, revolving credit can serve as a valuable resource during unforeseen expenses. It would allow for bridging of temporary gaps, or even act as a strategic instrument for managing business cash flows.

However, the mishandling or excessive reliance on the facility can result in burdensome debt, harm credit scores, and introduce financial instability.

She offers guidance on managing credit utilisation effectively:

Be proactive: When applying for revolving credit, it is crucial to proactively assess your current financial situation, considering your income, expenses, and existing debts. This evaluation will help you determine a credit limit that aligns with your affordability. Requesting a lower credit limit can also prevent excessive borrowing and reduce the risk of accumulating unmanageable debt.

Ndimande advises caution when credit card companies offer to increase your limit, adding that it is essential to assess financial feasibility and potential impact on spending habits before accepting.

“Credit card companies often offer to increase your credit limit after a certain period of responsible usage.

“While this can be tempting, be cautious about accepting the offer until you’ve done another thorough assessment of whether it’s financially feasible, or if it’ll lead to overspending to meet monthly limits,” she says.

Practise restraint: Utilising 100% of your credit limit adversely affects your credit score by increasing your credit utilisation ratio. To maintain a healthy credit score, it is recommended that your credit utilisation rate must be below 30% of your total limit. Ndimande says by maintaining a low utilisation rate, you also “reduce the interest you accumulate, making it easier to repay your debt”.

Pay more than the minimum: According to Ndimande, paying more than the minimum amount stipulated by your bank or credit card issuer can have a significant impact on managing your debts. This approach offers various advantages to improve your credit score, showcasing responsible debt management to lenders and resulting in long-term savings on interest charges.

“It also helps you save on interest charges over time, allowing you to pay off your debt faster,” Ndimande says.

Protect your credit score: A credit score is a numerical indicator that reflects your creditworthiness, impacting several aspects of your personal and professional life. In today’s world, employers frequently consider a candidate’s credit score as part of the hiring process to evaluate their financial responsibility.

Likewise, landlords may perceive applicants with lower scores as potentially risky tenants when reviewing rental applications. By being aware of your credit score and taking steps to improve it, you can enhance your financial wellbeing and gain access to better career opportunities and responsible credit choices.

“In today’s competitive job market, employers often consider a potential candidate’s credit score during the hiring process, as it can reflect their level of financial responsibility.

“Additionally, your credit score can influence your rental applications, as landlords may view applicants with lower scores as high-risk tenants.

“So, being mindful of your score and improving it enhances your financial health and can open doors to countless career and responsible credit opportunities,” she says.


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