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The start of a new year is a great time to review your finances and saving habits, and to check up on your credit profile.
Often, it is only when you apply for credit and get turned down that you realise you have a bad credit record and could be considered to be a high credit risk. For most of us, this comes as quite a shock.
Many South Africans are surprisingly unaware of the importance of a good credit profile. Many people do not even fully understand what this is and, even if they do, they seldom check their own credit profile.
So what is a credit profile? It all starts with information from the Credit Bureau, which records all credit applications, credit agreements, payment history and payment behaviour, as well as other consumer credit-related information.
Your information – positive and negative – is stored by the bureau. Importantly, to get good credit, it helps if you have existing credit.
Good credit profiles are gained when you borrow money and pay it back on time and in full. Having a good credit profile enables you to borrow money on more favourable repayment terms.
If you default on payments, your credit profile is affected, which could make it much more difficult for you to obtain credit in future.
While adverse legal information is cleared as soon as the account is settled, the negative repayment history remains for a couple years.
Use the following useful guidelines to access, assess and improve your credit profile:
LOOK AT THE ACCURACY OF YOURCREDIT PROFILE REPORTS
You can do your own credit check free of charge every 12 months through one of several credit bureaus, including:
- TransUnion – 086 148 2482
- Experian – 086 110 5665
- Xpert Decision Systems – 086 112 7334
- Compuscan – 086 151 4131
If you find you have an unhealthy credit profile, investigate the reasons listed.
A big part of fixing your credit profile is determining what caused it to go “bad” in the first place. Was it one dramatic incident, like a foreclosure or bankruptcy? Or was the problem a series of smaller things, like late and missed payments that went on for a period of time?
Important information that you should take note of on your credit report includes the following:
- Whether all personal information is up to date, including your address and contact details.
- Whether any accounts have been opened fraudulently in your name.
- Whether any enquiries reflected on your credit report are made by credit providers you have no relationship with.
- Whether any accounts that you closed reflect as open on your report.
- Whether any accounts that are still open reflect as closed on your report.
HOW TO IMPROVE YOUR CREDIT PROFILE
There are a number of ways to improve your credit profile. It starts by keeping outstanding balances relatively low on credit cards and other accounts.
High outstanding debt can affect your ability to repay creditors, so it’s important to only apply for and open new credit accounts when they are needed – don’t open accounts just for the sake of it. Rather pay off debt than simply move it around.
It’s interesting to note that it is not only a poor credit history that may affect your ability to get credit. A lack of positive credit information (for example, not having a history of paying on time) can cause an application to be declined or can result in an increased “cost of credit” and will have a notable impact on the amount that you need to repay.
It is never too late to begin working towards an improved credit profile. After all, it may help ensure you will be able to purchase your dream house, finance a vehicle, pay emergency medical expenses or further your studies one day.
As a general rule, avoid using credit for consumption spending.
Ramalho is African Bank’s group executive
