- Do not ignore your debt.
- Prioritise and pay your debt.
- Avoid borrowing to pay off debt.
- Cut down on your expenses.
- Never skip repayments when under debt review.
- Prioritise your home loan.
- Always act on a letter of demand.
- Approach credit providers when you cannot pay your
debt.
- Seek help from a debt counsellor.
- Plan to save money every month. Credit scores are
used by credit providers to determine the amount of credit to offer a consumer,
and on what terms.
Understanding
credit scores
A consumer’s credit score is calculated by a credit bureau based on a
person’s credit report. The bureau considers how a consumer pays their bills,
how much debt they have and how all of that compares to other credit-active
consumers.
Each bureau has a different way of calculating the score. They take
into account different forms of information, including information their
organisation already has on you, or your employment circumstances. Major credit
bureaus like TransUnion and Experian provide a free credit report once a year;
consumers are advised to check their reports and immediately query any possible
errors.
Reinhard Pettenburger, CEO of Debt Therapy and chairman of the Debt
Counsellors Association of South Africa in the Western Cape, says one factor
that may affect your credit score is the number of searches companies and banks
have made because of multiple applications for credit or store cards.
“The thinking is that you have been trying everyone and everywhere to
get credit, but you were not successful. If you were successful there would
only have been one or two searches. This increases your risk and reduces your
credit score.”
Another factor affecting consumer’s credit score is how long they have
been in the same job and at the same address. Credit providers are looking for
stability in consumer behaviour.
The record also shows on which accounts payments were made late, and
for how long accounts have been in arrears. The consumer’s credit record also
reflects default judgments.
Derick Cluley, head of international analytics company FICO’s Africa
operations, says the single most important component of the credit score is the
payment history, which makes up 40% of the total score. Late payments will
reduce one’s credit score.
A high score means the consumer has a healthy credit record. It will
make it easier to borrow money at a lower interest rate.
This originally appeared as part of the cover
story in the 10 May edition of finweek.
Buy and download the magazine here, or sign
up for our weekly newsletter here.
