Understand your credit profile

2010-09-25 11:41

Your credit profile is a history of your past and present spending and payments habits. It is your financial reputation on paper. It lists your personal details, employment ­details, and your credit and other financial obligations.

“A credit profile is one of the ­criteria that credit providers refer to when assessing a credit application,” says Shireen Miller, operations manager of Imali Matters, which offers financial guidance to low-income consumers.

“Although your credit record is not the only criterion when it comes to lending, it must be ­emphasised that a good credit profile can open doors for you when applying for credit,” says Miller.

How can I access my credit profile?

Your details will be listed on the national credit register, which prospective credit providers can check to determine whether you can afford to take on more debt.

This database of credit agreements is maintained by the National Credit Regulator, which gets its information from credit bureaus.

How does my credit profile work?

You are entitled to a free credit check a year from each of the credit bureaus.

This free check will give you the following basic information:

  • Verification of your ID number and proof of residence.

  • The number of accounts you hold.

  • How many judgments, notices, defaults and collections you have had against your name.

  • Total balance exposure.

  • Total monthly exposure.

  • Total overdue amount (a good credit record shows this as 0).

The total balance exposure is an estimate of the total you will be required to pay to settle the accounts held in your name and includes credit available.

In other words you may have an Edgars account you never use but have R5 000 worth of credit available.

Technically speaking, the higher the figure, the more risk to a company granting you a loan, so make sure that you have closed accounts you no longer use, even if you have settled your debts and obtained a zero balance.

What is a credit bureau?

A credit bureau is a library of information, says Marj Murray, communications executive at Experian South Africa, one of South Africa’s four main credit bureaus.

Without a credit bureau, the decision to grant credit could take days as the lender would have to spend time calling for references on how you were paying your accounts.

“A credit bureau does not make the decision to grant you credit or not. The decision to grant credit is made by the company with which you have made an application. This decision is based on the credit lender’s own credit-granting policy, which could take into account the information on your credit report,” Murray says.

“Remember, all credit providers are not the same and will apply different criteria. Find out what these might be when applying for a loan,” cautions Miller.

There are four credit bureaus in South Africa and in terms of the National Credit Act you have a right to one free credit report a year from each. It is worth getting your credit record from at least two bureaus.

To obtain yours, visit one of the following websites or call centres:

Transunion:
mytransunion.co.za
0861 482 482

Experian:
creditexpert.co.za
0861 10 56 65

CompuScan:
CompuScan.co.za
021 888 6000

Xpert Decision Systems:
xds.co.za
011 645 9100

If one company has turned me down, will others too?

Not necessarily. Different companies take different factors into account when deciding whether to grant credit.

One company may decline your application while another company may accept it.

If you are turned down as a result of credit bureau information, contact a bureau for advice in terms of what action to take.

Request a copy of your report before making further applications.

Positive and negative information: the difference

Credit bureaus hold both positive and negative information about you.

Negative information covers issues such as judgments and defaulted credit accounts.

Positive information regards accounts that are up to date, or paid up, and help you get credit.

Positive credit information makes up about 85% of all information stored on Experian’s credit bureau, according to Marj Murray, communications executive at Experian South Africa.

How do credit providers know what I can afford?

Affordability used to be based on gross household income, with 30% of this income the generally accepted rule of thumb. Now, under the National Credit Act, they will look at your disposable income instead. Disposable income is the amount of money left after all your expenses have been paid.

It will look at your net income (after tax and deductions)
R12 000

Less your monthly expenses (groceries, petrol, cellphone)
R3 000

Less monthly instalments (insurance premiums)
R2 600

Less monthly credit commitments (loans, credit cards)
R1 000

Your disposable income will therefore be:
R5 400

This is the amount that can be borrowed against.

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