How to fix your credit record
ABOUT 47% of all credit active South Africans have fallen behind on paying their bills – while a third haven't paid some of their creditors for more than two months.
More than eight million consumers will therefore find their credit records are "impaired" – meaning you will sweat to get finance for a house or car, or even get credit with a store.
And if you do manage it, your interest rate may be higher. A blemished debt history could even work against you when applying for a job – in certain circumstances, employers are allowed to take a look at your credit record.
How to get yours into shape:
1. Paying your bills is not enough.
It simply has to be on time. Seriously.
Even if you paid the minimum outstanding balance on some credit cards only one day late, it could appear as an imperfection on your credit record – and may stay there for up to a year. If your creditor handed the debt over for collection or took legal action, it will sit on your credit record for two years – even if you paid the debt back. (It will however reflect as "paid in full", which is positive.)
If there was a court judgment about your debt (if you ignored a summons, for example) it is held on the credit bureau system for five years.
Neglected, overdue medical bills are some of the biggest causes of SA credit record blemishes.
Credit cards are big culprits - it is particularly important that you make the full minimum payment every single month, says Hilary de Kock, head of consumer relations at the credit bureau Experian SA.
If you have financial problems and struggle to settle your debts, be proactive. Contact the creditors before they contact you, and try to renegotiate repayment terms. Should you get to a point where you require debt counselling or opt for debt review, ask that the creditor not take legal action against you while you are under debt review.
But if you have already received a section 129 letter for a specific debt, warning that legal action may be taken, your debt counsellor won't be able to negotiate new repayment terms on that debt.
2. Check your credit record.
All South Africans are entitled to one free credit record a year. You can get it by contacting one of SA’s credit bureaus, including Compuscan, TransUnion, Experian or XDS. They can send it to you via email, fax or post.
On your credit record you will find both positive (good payment history) and negative (late or missed payment history).
It also contains information such as your name, address, employer and ID number - the details you give to credit grantors when completing a credit application form.
There will be details on your credit history such as your account history and history of paying habits, that is whether you pay your accounts regularly and on time over a 24-month period, says Ashley Bester, an executive with TransUnion.
The retention period of payment history as detailed in the National Credit Act (NCA) is five years; some bureaus retain this information for 24 months, others for 36 months.
There will also be information about who asked to see your credit record. (Some of the bureaus may offer you a paid-for service which will alert you every time someone requests your credit record.)
If you have no negative information on your credit record, it may be worth your while asking your bank (or shop around) for lower interest rates.
3. Correct mistakes.
It is a good idea to check your record before you apply for credit, in case there is incorrect information.
If you do not recognise or understand certain information on your credit report, you may call the credit bureau and query the information, says Bester.
You can lodge a dispute about incorrect payment details with the credit bureau, which is obliged in terms of the NCA to investigate and find credible evidence to support a disputed listing within 20 business days.
Your credit report should show that a dispute has been lodged and it will not be on display for the duration of the investigation. If the information can't be verified in 20 business days, it will be removed. The result of the investigation will be sent to you by email or sms, or an updated credit report will be supplied.
Keep all payment records – also all correspondence as part of the case.
Your credit record is also a great place to spot fraud; take note of new applications or accounts you are not aware of.
4. Settle your debts.
If you are behind on payments, try to pay off the debt. If the amount is settled, get a letter from the creditor and ask the institution to inform the credit bureau.
5. Think like a creditor.
Each creditor has a different rating or strategy when considering an application for granting credit. Most will assess your creditworthiness with an electronic programme which gives weights to different aspects of the information you have supplied, as well as information obtained from a credit bureau.
There are ways to increase your appeal:
- Be boring. Creditors like consumers who are predictable payers, who settle their bills on time, every month.
- Be very careful when applying for credit. Remember that every time you fill in an application form for credit, the creditor has to check your credit record. (You will give permission in the application form.)
Even if you decide not to take up the deal, a flurry of credit checks will show up on your record and may raise a red flag for a creditor.
- Credit limits. On the one hand, asking creditors to lower your credit limit is a fantastic idea. It removes temptation, bearing in mind that all your available credit (even if it is unused) has to be considered when you apply for a loan.
Creditors will look at your debt-to-available credit ratio and how close you are to reaching your credit limits. Some experts have suggested that your debt balance should be less than 30% to 35% of your available credit.
- When checking your credit record, make sure it is displaying the correct available credit limits.
- Be contactable. Ensure that your creditors have all your details.
Should your contact details - including address and telephone number - change, notify your creditors promptly. Consumers who have fallen into arrears and who are not contactable will have a negative listing at the credit bureau against their names, says Darrell Beghin, manager: credit information and research at the National Credit Regulator.