This month, we received several questions about credit records. Make sure to get your free annual credit record check to make sure you know as much about your credit history as lenders do
Andy writes:
What information are banks able to buy from credit bureaus about my financial history and standing, and what do they use it for?
TransUnion replies:
Lenders, such as banks, purchase a person’s credit files – which represent that individual’s creditworthiness – when that person decides to apply for credit. Thus, a lender buys a person’s credit file from a credit bureau such as TransUnion. The type of credit information found in these files includes:
. Personal information (identity details, address, contact numbers).
. Existing credit, such as home loans, car finance, clothing accounts, credit cards.
. The payment history, which would indicate whether or not you meet your monthly credit payments.
. Negative listings – if you have any. These would include defaults, judgments and insolvency.
. Enquiries/credit applications from companies that have accessed your credit report for application purposes.
. The credit score, which is a numerical value based on analysis of a person’s credit history calculated by a credit bureau such as TransUnion. There are a number of factors that influence your score, such as your income and expenses that you provide when you apply for that loan through your financial institution.
It’s important to understand that there are many different credit-scoring models out there that are created by different credit bureaus, and each may use a different scale to convey information. It’s up to individual lenders and insurance companies that use these scores to decide which scores demonstrate an acceptable level of risk.
The lenders, such as banks and credit card companies, use the credit bureau information listed above to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to
bad debt.
Because the credit report shows the consumer’s behaviour when it comes to paying existing accounts, lenders use this information to assess how a consumer manages their debt/financial responsibilities, and then make a decision to either offer the credit or decline the request.
Loan scams continue
Tebogo writes:
I applied for a R200 000 loan from a company called Blue Financial Services. They told me the loan was approved and I had to pay a R200 administration fee, which I did. Then they sent me a lawyer’s letter requiring an amount of R3 750 for cost of transfer of the loan, which I paid.
They then requested a further R5 000 because the money was coming from a foreign bank, and then a further R7 500 for insurance. I paid all of this – each time into a different bank account – but I still don’t have the loan amount.
City Press replies:
Unfortunately, this looks like another loan scam. There are many fraudsters pretending to be credit providers, and many ask for money upfront, but disappear once they have it.
The only recourse is to open a case with the police, as you would if someone stole money from you.
It is very important that you do this, so the police can collect as much information about these syndicates as possible. The National Credit Regulator (NCR) is unable to assist because the company is not a registered lender.
We warn readers to be careful when dealing with unregistered lenders. According to the NCR, the following should ring warning bells:
. They ask for money upfront. The National Credit Act does not allow credit providers to request upfront payment for the release of personal loans. Consumers should not pay money before they are granted a personal loan.
. No affordability or credit assessments are conducted. All credit providers are required to conduct affordability assessments and credit checks before granting loans. If the credit provider is bypassing this process, it should raise questions.
. No orange sticker. You can verify a registered credit provider by checking that they have a window decal (orange sticker on their window with the NCR logo); registration certificate at their business premises, which has an NCR logo; and the registration number.
You can also check the regulator’s website for a comprehensive list of registered, lapsed and cancelled credit providers.
. They use a foreign web domain. When it comes to online credit providers, consumers should be wary of credit providers using websites or email addresses with internet domains such as yahoo.com, webmail.co.za, .co.uk, @admin.in.th and @manager.in.th.
If you are unsure about the legitimacy of a credit provider, you are urged to contact the NCR on 0860 627 627, or go to ncr.org.za.
Should I put my car and house in a trust?
Lebo writes:
My brother has suggested that I form a family trust and put my house, car and investments into it to protect them. Is this a good idea?
Frank Magwegwe, head of Momentum Personal Adviser Services at Momentum Retail, replies:
Trusts are very effective estate-planning tools, but care should be taken to ensure that they are used appropriately.
Two main reasons for setting up a trust are to protect the assets that are placed in the trust and to facilitate the transfer of one’s estate from one generation to the next. Family trusts have come under the scrutiny of the SA Revenue Service in recent years and are subject to high tax rates.
Although the high tax rates can be mitigated to some extent through careful planning, this requires the estate planner to remain abreast of activities in the trust, and often requires specialist advice.
Trusts must also be administered properly, which often means obtaining the services of a professional services provider who will charge for providing these services. Before deciding whether to implement a trust, one must consider the benefits of the trust in terms of the protection that it offers in relation to the increased administration costs, additional time required to administer the trust and the possible negative tax consequences.
The outcome of this exercise will provide guidance as to whether a trust should be used or not.
Lebo wants to “put her house, car and investments in a trust to protect them”. In this case, my view is that this doesn’t warrant the setting up of
a trust.
How do I clear my credit record?
Tshepo writes:
I would like to know what the next step is after
you have settled your debts to improve your credit score. In other words, how do
you clear your credit report.
According to the Office of the Credit Ombud, once the consumer has settled all the outstanding debt, a paid-up letter should be given to him/her from all the credit providers. These letters will then need to be submitted to each of the credit bureaus.
The bureaus will update their records and then forward the consumer an updated report.
The bureaus each work with a different scoring method and the consumer will need to contact them for the methodology.
You need to be aware, however, that while the
credit will be shown as paid and will be viewed positively by a potential
creditor, the payment profiles are generally reflected on your report for two to
five years, so it will still show any history of nonpayment and may still
influence your credit score.
Thank you for your article “Why new retirement fund rules are good news” (City Press, January 17). I want to know, however, if this affects retirement funds on resignation or retrenchment.
The changes to how retirement funds are treated on retirement do not in any way affect the way retirement funds are treated on resignation or retrenchment.
If you resign or are retrenched, you are still able to take the money as a lump sum, although we strongly advise you to preserve the funds for your retirement, especially as tax will apply.
It is also important to note that these changes
do not affect the Government Employees’ Pension Fund because it is a defined
benefit pension fund and the current rules apply.
To what extent does a credit record affect your chances of getting a job, and can an employer run a credit check? If you have a bad credit record, does this affect your prospects of securing employment?
According to the National Credit Regulator, the National Credit Act stipulates that a potential employer has to get permission from a candidate employee to run a credit check.
Moreover, a credit check can only be requested in instances where a candidate is considered for employment in a position that requires honesty in dealing with cash or finances.
So, technically, a potential employer may not request a credit check, unless the position requires it. However, in practice, many employment agencies run credit checks on candidates and the permission forms part of their agreement to represent you.
Employers are concerned that if an employee is dealing with severe financial difficulty, even if they are not employed in a position where they will deal with cash or finances, this would create work stress and lead to debt collectors calling or requests for emolument attachment orders.
Employers do prefer candidates who are not in financial trouble, but if the position does not relate to finances, you have the right to refuse permission for the credit check.