Build­ing a healthy credit score

WE ARE OF­TEN PARAL­YSED BY THE IDEA OF IN­VEST­ING, BUT BE­COM­ING A SUC­CESS­FUL IN­VESTOR STARTS LONG BE­FORE YOU MAKE YOUR FIRST IN­VEST­MENT. IN THIS SE­RIES OF AR­TI­CLES, FINWEEK DRAWS UP A ROAD MAP TO GET YOU FROM FI­NAN­CIALLY FLUS­TERED TO IN­VEST­ING WITH CON­FI­DEN

Finweek English Edition - - FRONT PAGE - BY BUHLE ND­WENI

It can be easy to give in to the t e mptation of open­ing t hat ad­di­tional cloth­ing ac­count, or to get that credit card or per­sonal loan to tide you over a fi­nan­cial rough patch. There’s also the ad­dic­tive rush that comes with swip­ing the card to make pur­chases.

Of course, hav­ing nu­mer­ous credit agree­ments with var­i­ous credit providers is not nec­es­sar­ily a bad thing as long as you main­tain a good credit record. But many peo­ple soon find them­selves deep in the red, with their once-good credit pro­file go­ing up in smoke in a mat­ter of months.

We spoke to credit ex­perts to help our read­ers start their jour­ney to­wards a health­ier credit pro­file and score.

Na­tional Credit Reg­u­la­tor (NCR) com­pany sec­re­tary Le­siba Mashapa says t hat con­sumers de­fault­ing on their con­trac­tual debt obligations, or a judg­ment be­ing taken against them for not mak­ing pay­ments, or a con­sumer tak­ing on too much credit, usu­ally works against their credit score. This is be­cause th­ese ref lect on their credit pro­file and the in­for­ma­tion is re­ported by credit providers and other ser­vice providers.

Ac­cred­ited court an­nexed me­di­a­tor at the Na­tional Debt Me­di­a­tion As­so­ci­a­tion Ma­gauta Mphahlele says when credit bu­reaus cre­ate the score, they look at in­come and ex­penses and cer­tain el­e­ments within a con­sumer’s credit pro­file.

“They look at how much debt you have and your re­pay­ment be­hav­iour be­cause on a monthly ba­sis the credit providers record how and when you pay. The other thing they look at are public records – th­ese are judg­ments, ad­min­is­tra­tion or­ders, and whether you are un­der debt coun­selling,” she says.

Tran­sUnion is a credit bureau that col­lects in­for­ma­tion on con­sumers’ debts. Se­nior vice-pres­i­dent of Tran­sUnion An­a­lyt­i­cal and De­ci­sion So­lu­tions in South Africa Owen Sorour says that when mak­ing a de­ci­sion on ex­tend­ing credit to con­sumers or not, credit providers use in­ter­nal data in ad­di­tion to data from the credit bureau to make an anal­y­sis.

He says based on credit be­hav­iour, t here are var­i­ous cat­e­gories t hat a con­sumer will be clas­sif ied as, i n terms of their debt re­pay­ment records. A con­sumer’s ac­count can ei­ther be clas­si­fied as good, if pay­ments are made reg­u­larly and on time, or bad if pay­ments

are skipped or made late. In some cases, a con­sumer’s pro­file is clas­si­fied as be­ing nei­ther good nor bad.

SCO RI N G YO U R CR E D IT BE­HAV­IOUR

Sorour says score cards have pos­i­tive and neg­a­tive scor­ing and it’s about adding points for good credit be­hav­iour like pay­ing your ac­count ahead of time or on time and reg­u­larly, and sub­tract­ing points for bad credit be­hav­iours, like not pay­ing on time or skip­ping pay­ments.

Depend­ing on t he t ype of loan a con­sumer wants to take up, it is com­mon for the ve­hi­cle fi­nancer or bond orig­i­na­tor to ap­proach a num­ber of banks to de­ter­mine which one would of­fer the best in­ter­est rate.

When you ap­ply for a loan, the num­ber of en­quiries you make are recorded with the bu­reaus. Th­ese en­quiries will not have much of a weight­ing if you have a very good credit score, says Sorour, but if the credit score is at the mar­gin then a few points are sub­tracted as a re­sult of an en­quiry be­ing made and may have an im­pact on your credit ap­pli­ca­tion.

“What would hap­pen if for in­stance a con­sumer shops around for the best in­ter­est rate, the credit bu­reaus will note that there’s an at­tempt to open five dif­fer­ent ac­counts within a short space of time, and this may count against the con­sumer’s credit score.

“But from a con­sumer pro­tec­tion per­spec­tive, we don’t think that is a good thing be­cause we en­cour­age con­sumers to shop around,” says Mphahlele. And for cer­tain credit agree­ments you should ask for a quo­ta­tion and [if they give] you a quo­ta­tion that some­times lands as an en­quiry be­cause they have to look at your credit bureau re­port. We don’t think it is a good thing, but we don’t think it holds too much weight in terms of the credit score it­self.”

DOES A DE­CLINED AP­PLI­CA­TION FOR VE­HI­CLE FI­NANC­ING OR A HOME LOAN WORK AGAINST YOUR CREDIT PRO­FILE?

“The reg­u­la­tions al­low for ‘en­quiries’ against a con­sumer’s prof i le to be dis­played for 18 months. The credit re­port will show the en­quiry that has been made and t he rea­son for t he en­quiry. The out­come of ap­pli­ca­tions re­sult­ing from th­ese en­quiries are not ref lected on the credit bureau pro­file,” says Mashapa.

“Con­sumers should be aware that the de­ci­sion to grant or decline credit is not made by the credit bureau but by the credit providers af­ter con­sid­er­ing all the rel­e­vant in­for­ma­tion in­clud­ing the credit bureau re­port,” he ex­plains.

BUILD­ING A POS­I­TIVE CREDIT PRO­FILE

To en­sure that you build your credit pro­file, you need to make full pay­ments to credit providers and should avoid de­fault­ing on your ac­counts, says Mashapa. “Con­sumers should only take on debt that they re­ally need and that they can af­ford. A good credit re­port can serve as an as­set for con­sumers to ne­go­ti­ate bet­ter rates and con­di­tions when they do de­cide to take on new debt obligations.”

Mphahlele agrees: “If you have a very good credit record, usu­ally credit providers will of­fer you a lower in­ter­est rate, prime plus or prime mi­nus – that is ac­cord­ing to the risk they think they may be in­cur­ring. They might ac­cept your loan ap­pli­ca­tion, but might in­crease the in­ter­est rate, or they might want a de­posit for a ve­hi­cle or home loan.”

She says if you can’t pay the orig­i­nal in­stal­ment you should in­form the credit provider. Each credit provider has its own cri­te­ria in deal­ing with this, some may ar­range to re­duce the in­stal­ment for a cer­tain pe­riod and al­low you to pay the monthly in­ter­est, while oth­ers may per­ma­nently re­struc­ture the ac­count.

“But the prob­lem is that con­sumers don’t know how to ne­go­ti­ate th­ese things, they don’t know how to do a proper bud­get then they agree to things they can­not re­pay and that is why it is im­por­tant to con­sult an ex­pert. And peo­ple wait un­til it’s too late and the credit providers have taken ac­tion against them. Credit providers are very open,” Mphahlele adds.

She ad­vises con­sumers: “It’s never too late to speak to your credit provider, at any point you can still talk to them, even when they have a court or­der. So talk to them or get an ex­pert to as­sist you.”

Mashapa says that an in­creas­ing num­ber of rental agen­cies are be­ing reg­is­tered with credit bu­reaus, who record whether ten­ants are pay­ing their rent on time.

“Rental obligations pay­ments can be re­ported to the credit bu­reaus. South Africa has a di­ver­si­fied credit bureau mar­ket that in­cludes spe­cial­ist credit bu­reaus with some fo­cus­ing on the rental mar­ket,” he says.

Sorour says us­ing rental pay­ment be­hav­iour to ex­tend credit is cur­rently not that preva­lent due to limited data col­lected. How­ever, this could change in the next 12 to 18 months.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.