Finance – Know your credit score

Your CREDIT RATING is going to make the difference whether YOU QUALIFY for that home loan or not.

In her book, Women and Money: Owning the Power to

Control your Destiny, personal finance guru, speaker and author Suze Orman says if we aren’t powerful with money, we are not powerful, period! According to Orman, we women should strive to take control of our finances by paying off debts, respecting our money and, more importantly, maintaining a good credit rating. Why?

Mkateko Dlomu, a financial planner at FNB, says credit scores help financial institutions determine your risk profile prior to providing you with a loan – the higher the risk, the less likely you are to get a loan. “They also protect you from excessive debt exposure, which could result in repayment defaults,” he says.

A good score allows you access to credit at low interest rates. “An excellent score is helpful, especially for loans, be they in the form of personal, home or car finance,” says Dlomu.

However, he warns that if you have a poor credit record, you may have little to zero access to new credit. This might leave you feeling as if no credit is the answer. But this comes with its own set of problems, as Zanele found out when she was declined a gym contract because she didn’t have any kind of credit rating. The 32-year-old avoided a credit trap, but this left her without a profile, good or bad. “I was advised to open a store account to start building my profile.

Six months later, they saw that I was a good payer and I got the contract,” she says.

Bongani Moses, the head of legal, risk and compliance at Wonga Finance SA, warns: “Repayment behaviour – be it paying the minimum amount that’s required on time, skipping payments or being in arrears on your credit commitments – will be visible on your credit report. Personal information, like the amount of properties you own, any court orders, a list of all your current accounts and recent credit enquiries, may also be included in your credit report.”

KEEP YOUR SCORE INTACT

“Banks, utility companies and even prospective employers may be interested in your credit history to get an understanding of your buying and borrowing agreements,” says Moses. “There are a number of factors that affect your credit score, such as how many times you apply for credit, the payment history of any credit – including any late payments – the number of active credit products you have at the time and the enquiries for your credit record.”

Bridgette, 38, never thought debt would influence her chances of getting a job. “I had been unemployed for some time, so there were payments that I missed. After every interview things looked promising, until HR did financial checks. I was told that I couldn’t get the job as my credit score wasn’t up to par.”

Dlomu agrees that many employers perform credit checks to determine the risk profile of a candidate. The more positive your score, the better your chances of securing a job. “There are instances where a bad credit rating or spending and repaying habits could affect your score. For example, school fees that aren’t paid by the parent responsible for the account can affect the other parent’s account as both may be held liable.”

Stephen Logan of Logan Attorneys advises in an article on www. bregsman.co.za that women take two critical steps after a separation or a divorce. “Firstly, change your will, otherwise your ex-husband will still benefit in the event of your death. Secondly, communicate in writing with your creditors to ensure you no longer bear any responsibility for the payment of those accounts, which in terms of the divorce order, are now his responsibility.”

Moses adds: “If you’re married, your spouse’s credit rating can affect yours, depending on the marital contract you entered into. For in community of property contracts, this may have an adverse effect on the spouse.”

IMPROVE YOUR RATING

In an article on www.suzeorman. com, Orman warns: “To land the best loan deals and qualify for the best credit card offers, you need to have a seriously great credit score.”

Experts share tips below on how to improve your rating:

1. Get going: Start by looking at your credit limits versus how much you owe. Divide the total combined balances on your credit cards by your total credit limits. This is your credit utilisation ratio, and the lower it is, the better. One way to pump up your credit score is to decrease that percentage. “Pay off as much of those outstanding balances as possible,” says Moses. Payments made by the account’s statement date – not necessarily its due date — should reflect on your score as soon as the creditor reports the activity.

2. Pay on time: If you don’t have a credit card yet, apply now. If you don’t yet have a credit history and find it hard to get approved, a secured card can get you started. If you already have credit cards but your payment history is dragging down your score, dedicate the year to meticulously making every payment on time.

3. Check your credit report: Get a copy of your credit report, and go over it with a fine-toothed comb. You’re entitled to one free credit report every year. Look for accounts that you never took out or don’t recognise. You can dispute

this kind of inaccurate information, and getting it removed from your credit report should improve your score.”

4. Keep accounts: Resist closing accounts because they have zero balances. The longevity of your credit history affects your score – the longer, the better. Even if an older credit card is collecting dust in your wallet, keeping the account open works in your favour. Don’t close an account that has a balance because it will still be there while the credit limit goes away, and this affects your credit utilisation ratio.

EXPERTS ADVISE

“Always conduct your credit affairs with a medium- to long-term view in mind. Too many enquiries make it look like you’re shopping for credit. The majority of enquiries are ignored by the various scoring models. The most important thing to know is that if you keep your accounts up to date, and notify creditors when you move, it will ensure you will get credit you deserve,” writes financial fitness expert Iona Minton on www.moneykit.com.

Dlomu says it’s vital to check your profile and score before applying for anything to avoid possible disappointment at not getting a loan. “A safe principle to go by is that if you’ve entered into an agreement to pay monthly for any goods or services, do so as it can affect your credit record. Pay on time, all the time.”