Most South Africans don’t know what their credit score is and few bother to find out, even though it’s what is used to decide if you’re financially reliable.
Whether you’re buying a house or renting an apartment, financing a car or opening a clothing account, it’s almost certain that whoever you’re applying to will use your credit score to decide if they want to do business with you.
If you have a poor score it’s likely that they’ll turn down your application or charge you extra interest to counter the risk that you won’t pay back the money in time.
A bad credit score may not even be your fault. The information the credit bureau has may be wrong or outdated or someone could have created a fraudulent profile. You could have a bad credit score and not even know why loan applications or other transactions are being denied.
Knowing your credit score is a good place to start. By law you are entitled to one free credit report each year. You can get this from any of the credit bureau – the companies that calculate credit scores. The big four are Transunion, Compuscan, Experian and XDS.
If you have a high credit score then you can relax, but make a note to check your score again in a year’s time.
If it’s low, you may have a problem, but the good news is that there are some things you can do about it.
The first of these is to make sure that there are no mistakes. Make sure there are no late payments listed incorrectly and that the amount on each credit account is accurate.
You should also check to see that there are no unfamiliar accounts or unpaid debts. If fraudsters get hold of your ID number or other personal information, they can use this to open accounts in your name. The trail of unpaid bills they leave then gets reflected in your credit score.
If there are no mistakes or illegal transactions, you can still improve your credit score, but it will take more time.
The first thing you should consider is whether you’re paying your debts on time. Even paying a few days late can affect your score.
Although keeping your creditors informed if you are having difficulties 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’s 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 information about your payment history can stay on your record for two years and more.
Your credit score is calculated on information found in your credit report including your payment history, what is owed, activity, how long you’ve serviced an account, judgements and defaults and enquiries about your credit worthiness.
Bear this in mind when thinking about your financial priorities, a poor decision today, could have long-term implications on whether you are able to access credit and other financial services in future.