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What you need to know about your credit score

 

You don’t want to end up with a mark next to your name because of a short-term drop in cash flow.

And you don’t want a poor credit record to prevent you from being able to borrow when you really need to. Managed well, store cards, credit cards and personal loans are great products to have access to.

Know your credit score

South African credit bureaus will provide you with 1 free credit report per year, and all bureaus belonging to SA’s Credit Bureau Association agreed to provide consumers with free access to their credit reports during the Covid-19 lockdown, too.

You can find a list of SA credit bureaus at the Credit Bureau Association website, with links to their individual sites. Choose a bureau, and all you need to do is create an account, provide details like your ID number, and you’ll receive your report within a few minutes.

 

Understand your credit score

The score on your credit report tells you how willing lenders will be to give you credit. The scale sometimes differs depending on the credit bureau, but high numbers mean an excellent, good or favourable record. Lower scores reflect average, below-average, unfavourable and poor records.

Look out for the Credit Summary section of the report. This will show you which factors impact your score, judgments, notices (for unpaid accounts) and defaults linked to your profile.

If you don’t have a long credit history, or don’t have many credit accounts, your credit report might not give you a numerical score. But don’t worry, you can always build your score.

Try taking out a store card with a small balance. Or get a cellphone or data contract. The important thing in building your score, is to always make your payments on time.

What affects your score?

There are some obvious things that affect your score, and some less obvious ones that you should know about.

First off, if you miss payments or pay late, you won’t be looked on favourably. Also, if the amount of debt you have is high in relation to your income – especially short-term credit – then you might be considered too much of a risk.

Less obvious reasons are if you don’t yet have a long enough credit history on which to base an assessment.

You also have to keep in mind that multiple loan applications could affect your credit score. It all depends on which credit bureau is assessing you.

Some bureaus will lower your score for every enquiry, while another ignores multiple enquiries if they are all made in a week. Yet another has removed credit score enquiries from their ratings completely.

Before checking your own score, you may want to contact a bureau by email first and check their policy on this – making sure your enquiry won’t lower your credit score all by itself.

Fair or not, the theory is that more credit report enquiries could mean you’re shopping around for more credit – which could become a problem if you can’t repay in the future.

Or it might mean lenders are doing more checks on you, implying that they think you might not be able to keep up repayments on existing debt.

At the end of the day, all legitimate lenders will check your credit score at the bureaus, so make sure that yours is always in good shape.