HOW TO IMPROVE YOUR CREDIT SCORE

With the festive season around the corner, consumers are likely to take on more debt

STATS SA’s latest figures are enough to keep most people awake at night: unemployment has risen to 27.5% in the third quarter of this year, from 27.2% the previous quarter.

This translates into an extra

100 000 more people joining the ranks of the unemployed, which clocks in at 6.2 million.

Which means more South Africans are being kept awake at night by a “new tokoloshe”, debt, says John Manyike, Old Mutual’s Head of Financial Education. Manyike says the first quarter of this year’s Credit Bureau Monitor shows there are more loans than jobs. “The Credit Bureau Monitor tracks the country’s 25 million credit active consumers, but only 16 million people are employed,” he says. “Out of the 25 million creditactive consumers, only 49% are up to date. The rest have an impaired credit report.”

The monitor shows tracing and debt collection companies made 40 million enquiries in the first quarter of this year, which indicates millions of people aren’t honouring their obligations.

Avitha Nofal, senior legal advisor at the Credit Ombudsman, says since the best predictor of future behaviour is past behaviour, credit scores assist credit providers to determine consumers’ ability and behaviour to repay.

“The affordability criteria, as set out in the National Credit Act, and the risk profile of the consumer would be considered before credit may be extended.”

Being on the credit bureau isn’t bad in itself, Manyike notes, because it’s a record of how consumers transact and how they keep their promises. To improve your credit score, you need to know what your credit report looks like.

“Take an interest in your report,” Manyike says. “People need to educate themselves about what is a credit report, what sort of info is in there, etc. Phone credit bureaus to explain what your report means.”

Fewer than 200 000 people make enquiries on their own credit reports, compared to the 40 million enquiries from tracing agents. “That’s scary,” he says. “In the same quarter we had 23 million enquiries for credit applications – there’s a huge appetite for credit in South Africa.”

That’s especially so in January, when appetite for credit peaks because of festive season credit splurging.

Consumers are entitled to one free credit report a year. When checking that report, note areas of improvement as well as unfair or incorrect listings. Debts that have been settled might still reflect on the report, but they can only remain there for up to five years.

“Don’t presume that if you miss a payment in one month and subsequently pay a double or more than double the instalment in the following month then this would remedy not just the arrears but also your credit profile,” Nofal says.

“Factual information is retained on consumers’ profiles, so late or nonpayment would reflect adversely too, compromising your credit score.”

Consumers should be proactive, she advises: rather contact your credit provider to discuss being unable to meet payment commitments and arrange a repayment structure, than avoiding the issue and thereby damaging your credit score.

Avoid late payments, Manyike says, because those who pay late not only have a time management problem, they’ll damage their credit score and pay additional fees.

Consolidating all your debt can help too, because that allows you to lump all administrative fees, credit life insurance and debit order fees into one fixed amount. Manyike says this can be an effective way to improve your credit score because once all debts are settled they will be cleared off your record and they won’t show up as many credit agreements. But he warns against “consolidating the consolidation”: that too can become a debt trap.