You can’t ignore your credit score
Rating will alert you to identity theft and a good one will help you borrow money
IT’S difficult to live without credit. Unless you are sitting on a large inheritance, buying a car or property is almost impossible without access to car or home loans.
Credit reports are key to getting finance for these big-ticket items, but few people understand what makes up a good credit score, and how the credit report is compiled.
Here are some tips on what a credit report is, how to improve your rating and how to correct any mistakes. This list is not exhaustive, but it should give you a better idea of the world of credit reports.
Having an impeccable credit score does not automatically mean you will have access to credit: The score is only a small part of what lenders consider when deciding whether to give you a loan. It’s always a good idea to keep your score healthy, but don’t assume it will automatically translate into a “yes” from lenders.
Don’t attempt to open too many accounts: Hopping from lender to lender in an attempt to get access to credit affects your score and counts against you. Declined applications are also flagged.
Don’t miss payments: If you do, your credit score takes a knock. This won’t look good should you need credit to be extended to you later on.
Owing lots of money also affects your credit score: So you may not be missing payments, but if you have many loans and you’re paying back the bare minimum — just enough to keep you out of hot water — you won’t look good. Having lots of debt that you’re only barely managing means you struggle with debt management and you’re one monthly payment away from disaster. A high debt-to-income ratio counts against you.
Check your credit scores: You are entitled to one free report a year. South Africa has four approved credit unions which will give you your score: Experian, TransUnion, XDS and Compuscan.
Your credit score can alert you to instances of identity theft: Use your score to keep tabs on any illegal activity, where criminals are using your name. Check your score at least twice a year to be on the safe side. You’ll have to pay for a detailed credit report, but if you suspect any foul play it’ll probably be worth it.
You can lodge disputes with the credit bureau: Noticed an entry in your credit score that you don’t recognise? You can lodge a complaint with the credit bureau that you received your report from. You can also contact the credit ombudsman’s office on 086-1662-837, by e-mailing ombud@creditombud.co.za or visiting creditombud.org.za
What about credit amnesty?
IN 2014, the government enacted the National Credit Amendment Act, removing bad credit information from a consumer’s record. A lot of consumers are under the impression that this means their debt has been written off.
In fact, consumers still have to pay off their debts and do so timeously, because inconsistent or late payments will still have an impact on your credit score.
Fixing your credit score
IF you’re looking at a big-ticket purchase such as a car or a home, your credit score is important. Not only will it determine whether you are granted access to a loan, but a cleaner credit history enables you to negotiate a lower interest rate.
If your application is rejected, you’ll have to ensure, from that moment on, that all your payments are made on time. Usually, credit providers will look at payment behaviour over a six- to 12-month period and use that as part of their overall assessment to decide whether to grant your application.
Your credit score is like a personal credit management CV, so you need to make sure you keep an eye on it.