Lenders, prospective employers, rental agencies – they all want to know if you honour your debts.
That's what your rating is there to tell them.
So, as with many things in life, there's no running away from your past if you've made some regrettable financial mistakes in the past. But the good news is you can improve your credit score. Here’s how.
1 Be consistent and pay your accounts on time.
Honouring your commitments when you’ve undertaken to do so will improve your rating.
If you can’t pay your debt this will show on your credit record and it could be difficult to get even a cellphone contract. You know the true state of your finances so don’t get into debt if you know for a fact you can’t afford it.
It’s your responsibility to be honest about your finances when you apply for a loan. So just because you’ve been offered a financial product doesn’t mean you should accept it when you know you know that debit order may bounce, for instance.
2 Pay outstanding balances in full.
It’s all well and good to pay on time. But you should pay outstanding balances in full too.
The most common reason for SA consumers’ bad credit scores is failure to pay the full monthly instalment on their credit agreements, Matthys Potgieter from DebtSafe told Drum.
If you’re unable to keep up your monthly instalments, don’t hesitate to talk to the credit provider.
3 If you’re unable to pay the full amount, negotiate a more manageable premium.
It’s in your credit provider’s best interest that you pay off your loan so they’re generally agreeable to negotiating a lower instalment over a longer period.
A financial planner or even a debt counsellor can also help you come up with a plan to pay off your debts, even if you don’t go into official debt counselling.
Read more | Your money: What's a credit score and what does it tell lenders about you
4 If you’ve negotiated a lower premium, ensure those payments are met.
Remember, you can’t simply hope to wish the debt away by ignoring calls and messages if you realise you still can’t afford to pay even the lower premium.
All this will do is ruin your record and, legally, nonpayments must be indicated on your record for a year. Serious transgressions, such as being placed in administration or under sequestration, stays on your record for five years. Only once you’ve repaid your debt in full will any indication of nonpayment be removed from your record.
If the negative information stays on your record for longer than the legally stipulated year, contact the relevant bureau.
It must issue you with a reference number and is legally obligated to correct the record within 20 days. If it does not do this, you can approach the Credit Ombudsman (creditombud.org.za).
5 Avoid applying for credit often.
Each time you apply for credit, the credit provider checks your credit record. This leaves a record of why and what you’re applying for.
If there are too many of these enquiries from credit providers it’ll make your credit record look bad. The more credit you apply for the bigger the risk you appear to be to credit providers. So what can you do?
Simply put, don’t apply for credit often.
While a credit card used in times of emergencies and repaid in full might be useful, you don’t need a lot of retail accounts.
6 Check your credit score.
You’re entitled to one free credit record report a year from one of the credit bureaus but few people make the effort. The largest credit bureaus in SA include XDS (Xpert Decision Systems), Experian and TransUnion but there are many more. All credit bureaus must be registered with the National Credit Regulator (NCR) – ncr.org.za.
They’ll give you a credit score calculated according to your financial history, including loans and repayment habits, which will tell credit providers such as banks if you’ll be a good candidate for a loan.
Remember, if you suspect you may lapse on payments, notify your credit providers immediately as this could impact your credit score.
– Additional reporting: Vida Li Sik
