Most South Africans don’t know their credit score and few bother to find out, even though your creditworthiness is amongst the most important financial information there is about you.
Your credit report can determine whether you qualify for a home loan, vehicle finance, a personal loan or other forms of credit.
It also determines what interest rate you’ll pay, if a landlord will consider you a suitable tenant and can be asked for by a potential employer for a view of your financial behaviour.
“Your credit score affects more aspects of your life than most people realise,” says Fiona Ssemanda, Sales Head, at specialist loan provider DirectAxis.
“From banks to cellphone companies, everyone bases their decision about how much of a risk you are worth based on your credit score. Essentially, it’s your financial reputation and is more influential than any other reference you can provide.”
That’s why it’s important to know your credit score and ensure that the way you behave financially, builds your financial reputation over time, rather than detracts from it.
Finding out your credit score should be easy. By law, you’re entitled to one free credit report a year and you can get this from any of the credit bureaus.
These are the companies that compile information about consumers’ financial history, particularly whether you pay your bills on time, how much debt you have and importantly, how your financial profile compares to that of other consumers.
But Ssemanda warns that checking your score once a year may not be enough.
“A lot can happen in a year and if there’s a sudden downward change in your credit score for no apparent reason, you need to respond quickly. It could be anything from an error to identity theft.”
Very few consumers have perfect credit scores, which means nearly all have room for improvement. A benefit of bettering your score is that you will be able to access credit if you need it. Another is that it could save you money. People with higher credit scores can be considered for better interest rates on loans, insurance premiums and rentals.
“There is a perception amongst some consumers that there’s nothing you can do about a below-average credit score,” says Ssemanda. “This simply isn’t true, although it can take some time.”
Ssemanda says the first thing to consider is whether you’re paying your debts on time. “Even paying a few days late can affect your score.”
If you have several debt commitments, then use the credit report to try and prioritise it. Pay off the debt with the highest interest rates first, while maintaining the minimum payments on other accounts. Try to avoid taking on more credit, especially revolving credit such as store accounts. Increasing your available credit could lower your score.
Although keeping your creditors informed if you’re having difficulty won’t improve your score, negotiating a payment schedule is a positive step. Over time, as you settle the outstanding balances, this should reflect positively on your score.
It is important to remember that any overdue account will negatively affect your credit score. Paying it off, or closing it, doesn’t make your payment history go away and this information can stay on your record for up to five years.
“Establishing and maintaining a sound financial reputation gives you an advantage that is often underestimated. It’s like getting a bursary until you fail a subject - something you take for granted before it’s taken away,” concludes Ssemanda.
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