THE three digits that are your credit score are among the most important pieces of financial information about you, yet the majority of South Africans don’t know their credit score, nor do they understand how to manage or improve it.
Banks, finance companies, retailers, even landlords use your credit score to determine how financially dependable you are. A poor credit score could result in you not getting a loan, paying higher interest rates or not being considered for the house or apartment you had your heart set on. Despite being entitled, by law, to a free credit report annually from one of the credit bureaus, most South Africans seem unaware of how important this score is.
Checking your credit score can also reveal if anyone has been fraudulently using your profile to open accounts or borrow money.
Most importantly, knowing how credit bureaus determine your credit score means you can do something about improving a poor score or maintaining a good one. Marlies Kappers head of marketing at DirectAxis Financial services says that your credit score is calculated according to the information found in your credit report. “This includes your payment history, the amounts you owe, activity on an account, how long you have held your accounts – the longer the better – judgements, defaults and enquiries about your credit worthiness.” DirectAxis’ head of credit has the following tips for managing your credit score:
Check your credit report: Credit bureaus do make mistakes. Make sure that all the transactional information in your credit report is yours and is accurate. Alert the credit bureau if you find any discrepancies.
Pay on time: Your payment record has a big influence on your credit score. Even paying a few days late can negatively influence your rating. If you have to pay regular instalments, consider setting up a debit order, so you don’t forget and accidentally miss a payment. Alternatively put a reminder in your diary or calendar.
Reduce what you owe: Use the credit report to list all your debts. Arrange these according to the interest rates charged on each. Try to pay off the ones with the highest interest rates first, while maintaining the minimum payments on your other accounts.
Pay off debt rather than move it around: Limit revolving debt such as credit cards. Don’t apply for additional credit or accounts or increase your available credit as this could lower your credit score.
Tell creditors if you have a problem: Keeping your creditors informed if you’re having difficulties won’t improve your credit score, but if you can negotiate a payment schedule your score should improve over time.
Outstanding debt will stay on your record: If an account is overdue it will negatively affect your score. Making some payments or paying it off completely won’t clear your credit record, but will improve it.
Be aware that information about your payment profile can stay on your record for up to five years.
Closing an account doesn’t make the payment history go away and this will still be reflected in your credit score.