Another failure of our “education system” is the absence of courses on financial literacy. When we enter into the world of work, we quickly adopt the “month-end” mentality as we are unable to pay for anything until we receive until our salary at the end of the month. When we are desirous of purchasing a vehicle and we approach the financial institutions for financing we are told that we have no credit history and our application for the loan is denied. It took me three months to successfully acquire my first loan. My loan applications were rejected by two lending institutions because I had no borrowing history. This was a huge risk for the lending institution as there was no credit history to show that I would repay the principal and interest pursuant to the payment schedule. Prior to my loan applications, I was of the view I would be unable to sleep at night if I was owing someone money. Although I was reluctant, I decided to take the advice of my financial planner and take my first loan in order to establish my credit score. Please permit me to offer some guidance on establishing your credit score.
How to Establish Your Credit Score:
- Take a small credit building loan. The trick to taking your first loan, is to take a loan when you do not need it. Some financial institutions in Trinidad and Tobago offer loan sales around the Christmas period. At this time, some of the rigid requirements are waived. Banners are placed outside the financial institutions advising of these loan sales , it is difficult to miss it. I approached one lending institution before the loan sale and I was asked to provide collateral for the loan. Collateral acts a security in the event that the borrower fails to repay the loan. The loan officer at this first lending institution requested that I secure the full sum of the loan in addition to monthly installments for two months. Please note that the lending institution will ask you about the purpose of the loan and will require documentation as proof such as an invoice. I returned to this lending institution with the funds as requested then I was asked to provide a recent pay slip, I became irritated and did not return. I hope that you see how difficult it would have been for me to acquire the loan if I was in desperate need of it. I visited a second financial institution and I was asked to provide 50% of the principal sum as collateral. I tried to take this through one of my companies but I was advised that I had to produce at least three years of audited financial statements or three years of management accounts. I did not return to this financial institution because I did not wish to incur additional fees from my accountants. The third time was indeed the charm. The third financial institution agreed to give me the loan. By this time the loan sale started for the Christmas period and the customer service was superb. I also requested that the loan be used to invest in some shares at the financial institution thereby doing away with the need for me to provide collateral.
- Get a co signor on your loan- Instead of taking the loan by yourself, you can ask a parent or relative to also sign the loan with you as a guarantor. In the event that you are unable to continue repaying the loan, your co signor undertakes to repay the full sum of the loan. Some of my friends have acquired their first vehicles by having a parent co sign on the loan. The difficulty is that your co signor must have a good credit score . Where I come from, not many adults have even taken a loan in their lifetime. Some have taken goods on a hire purchase arrangement and they have been unable to repay the outstanding balance resulting in repossession (after the Christmas season). This negatively affects your credit score.
- Get a Secured Credit Card-This credit card is secured with at least $3000 TTD. In the event that you fail to pay your monthly installment, the financial institution has the $3000 as collateral. Of course, failure to repay your loan negatively affects your credit score. With respect to credit cards, one of my clients told me that he urged both his children to get a credit card after they graduated from university. Unfortunately not many of us as young professionals receive this advice from our parents. In some cases our parents manage their credit cards poorly or some parents simply do not have one. When I tried applying for a credit card (not a secured one ) I was asked to secure the credit card because I had no credit history. I decided to take the loan instead of the credit card, as the credit card was a loan that keeps on giving.
As you can see, establishing your credit score requires research and an assessment of your financial position. I urge you to consider establishing your credit score and ensure that you repay your monthly installments on time.
Antoinette Sydney LLB LEC CAMLFC CFRMP is an author and entrepreneur based in Trinidad and Tobago. She teaches you how to hustle from home.
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