The credit crisis in South Africa persists as the Consumer Credit Market Report (CCMR) and the Credit Bureau Monitor (CBM) released by the National Credit Regulator for the 4th quarter of 2013 provides several shocking trends. Ian Wason, CEO of DebtBusters South Africa’s largest debt counsellor, makes the following comments.
27 November 2012
Your credit rating is hard to build yet easy to destroy. It stays with you wherever you go and affords you the benefit of the doubt.
Your credit record is your financial “good name”. In the eyes of loan companies this is your reputation and is one of the most important considerations in their decision to lend you money.
Your credit score is an attempt to quantify your risk for lenders contemplating lending you money. The more “credit worthy” you are, the better your chances of being granted a loan. A clean credit record is also a potential bargaining tool for negotiations a lower interest rate.
The two main credit reporting agencies in South Africa are Experian and TransUnion ITC. Each time you borrow and repay debt the credit bureaus adjust your score accordingly. Creditors choose which bureau to use and each one has different information about you meaning that you have two credit scores. Lenders can also produce a unique score for you by using their own records.
Working on getting your credit score as good as it possibly can be before applying for a bond or other loan gives you an advantage.
Tips on perfecting your credit score
Pay on time
Paying on time is vital to your credit score. Payment history can contribute as much as 25% of your overall score. Each time you make a late payment it is noted and your score decreases. Setting up a debit order makes this easier and ensures you never miss a payment.
Pay your credit cards off
By making regular payments and keeping your balances down this shows you can handle being in debt and keep in control of your finances.
Don’t take on too much debt
Try to have only one credit card and one major debt (i.e. car or home loan). Never max out your credit cards and try and keep the outstanding balance below half of your credit limit. Avoid taking on more credit whilst you are paying off other debts. If you are planning to apply for a big loan, first pay off all balances which are close to their limits. Tackle those with highest interest rates first.
Close idle accounts
Having less credit agreements makes you look less risky to creditors. Close all unused accounts and notify the credit bureaus so they mark them as closed.
Don’t apply for credit too often
Shopping around and applying to different lenders can take as much as 10 per cent off your credit score. Each time someone runs a credit check on you it gets noted and negatively affects your score.
No history, no credit
While having too much debt is obviously bad for your record, having had too little will also count against you.
The duration of your credit history (how long you’ve been a credit consumer) can make up to 15 per cent of your credit score. If you have no, or a very short, history of credit then credit providers won’t be able to trust that your credit score is an accurate reflection of your credit worthiness.
If you want a loan but have no credit history, consider getting a credit card and pay it off completely each month. In this way you’ll indicate that you’re a responsible debtor that won’t cause the lender trouble.
Use an online comparison tool to find a fee-free card and pay it off in full before the interest free period expires.
Check your spouse’s rating
Creditors also have access to your spouse’s credit record and this could impact negatively on yours if it’s very bad.
Make arrangements to pay
If you find it impossible to make a payment, talk to your creditors and make arrangements to pay when you’re able to. Contact them as soon as you foresee trouble; don’t wait for them to contact you.
Obtain a copy of your credit report and look for errors
About 80 per cent of credit reports contain errors so it’s vital that you check both your credit records before applying for a loan.
The most common errors to look out for are accounts that aren’t yours (possibly indicating identity theft), incorrect information about your accounts and information that is too old to still appear on your record (all judgments against you should be removed after five years while unfavourable information can only be kept for two years).
Contact your creditors to inform the credit bureaus if you found that your report doesn’t accurately reflect all the payments you made. Insist on a written confirmation that they have indeed done this.
Contact DebtBusters for further assistance with debt settlement inquiries on 0869 99 06 06 or visit our website www.debtbusters.co.za.