Why your credit score matters.

Building a good credit profile not only sets you up for financial success, but has a significant impact on your trust rating. Corne Jordaan, sales head of FNB unsecured lending, explains why a positive credit score is crucial

A record T H AT contains information

on your credit history and financial dealings ‘clearly shows how you’ve handled your debt in the past; how much you borrowed, from whom and if you repaid it on time,’ says Corne Jordaan. Several credit bureaus registered with the National Credit Regulator (NCR) require all lenders to report information to this body: the type of accounts you have, your monthly repayments and whether they’re up to date. Various other industries report similar information, ‘such as mobile network operators and insurance companies. That information is used to assess applications for bank credit, retail accounts, and even renting property.’ GQ: What constitutes a bad rating? Corne Jordaan: There’s no magic credit score that’ll

‘Sometimes things don’t turn out the way you want. The important thing is to make payment arrangements and stick to them’

guarantee you get accepted for credit. Your credit rating, together with your income and expenses information, are assessed depending on what type of product you apply for. Any missed payments or legal action reported to the bureau will negatively affect your credit status. Your credit score could also differ from one credit bureau to another. The easiest way to understand it is to obtain a free credit report from a credit bureau. South African legislation allows consumers to request one free, per credit bureau, per annum. A banking app categorises your credit status into terms that are easy to understand.

GQ: Why manage your credit profile?

CJ: It’s crucial because it affects what kind of credit and how much you qualify for, and what interest rate you receive. A poor credit score can result in difficulty obtaining credit, a cellphone contract and it may even be referenced by a potential employer.

GQ: What are the benefits of having a good credit rating?

CJ: You’ll more likely be approved for credit and could potentially qualify for a lower personalised interest rate depending on the bank. Some banks offer personalised interest rates based on your credit profile. GQ: What if a creditor declines your application because you don’t have a credit history, which then leads you to open more accounts and sink further into debt? CJ: Credit providers typically want to review your repayment behaviour before lending you a significant amount of money. You build a credit record over time, so we suggest starting small before diving into a big purchase. You could do that by settling your credit card balance each month, and then you benefit from the interest-free period on your purchases, meaning you build your credit profile without incurring debt or interest.

GQ: What if I keep getting declined due to having a poor credit history?

CJ: Sometimes things don’t turn out the way you want. If you find yourself struggling to make a repayment due to an unforeseen event, the important thing is to keep in contact with your creditors, make payment arrangements and stick to them, which in turn will improve your credit status. It’s crucial to manage your credit responsibly – only borrow what you need and can afford to repay. When your circumstances improve, pay extra into your loan accounts to save on interest and fees and pay off your debt quicker.

GQ: How can consumers get hold of their credit report. Is it easy to understand?

CJ: There are various ways to find out what your credit rating is and obtain a report. A credit bureau is required by the National Credit Act to provide at least one free report per year. Various sites also offer this service, but it’s best to interact with the bureaus directly or with your bank.

GQ: How do you resolve issues regarding credit, such as defaults or blacklisting?

CJ: Your first step should always be to contact your credit provider and make payment arrangements. Repaying your debts may also result in the bureau removing a negative report. Should you question the validity of a credit agreement but can’t reach your credit provider, you can log a dispute with a credit bureau. You could also approach the Credit Ombud if neither your credit provider nor a credit bureau can help you resolve the issue.

GQ: How do you improve your credit rating?

CJ: Sticking to a repayment arrangement, should your account fall into arrears, is the best way to improve your credit profile. Your credit provider can help you reduce your monthly repayments and, in some instances, may even be willing to offer you a discount.

GQ: How long do things remain on your credit report, and what you can do about it?

CJ: A judgment will stay on your report for five years unless a court of law rescinds it during that time. Bad payment behaviour remains on your report for two years, even if the agreement or arrears are settled. Paying off debts on your credit report on time helps you to prevent damaging information from appearing on it. It also helps to improve your credit score. Look for ways to reduce your monthly repayments by adding extra money into your loan or consolidating credit.

GQ: Do banks advise clients on how to manage credit?

CJ: Banking apps feature tools to help you understand your credit status and manage your budget and spend by using a bank’s dynamic data capability to create a level of accountability via real-time coaching. Customers can take control of their spending, set budget limits, and receive a notification when they’re halfway there, just before they get there and once they’ve hit their budget amount.