What the eff is your ‘credit rating’ and how does it affect you, anyway? We quizzed Jeannine Naudé Viljoen, executive manager of the Credit Bureau Association (CBA), to find out the facts.
What is a ‘Credit Rating’?
‘Your credit rating or credit score is a representation of the way you manage your own credit – including credit cards, store cards, loans, and so on,’ explains Naudé Viljoen.
That includes everything from the debt you owe to how you’ve managed your scheduled repayments on this debt. ‘All of this info appears on your personal credit profile or report. This document shows all the credit or accounts you have, and how well you pay them, meaning late and underpayments are reflected, too. If you always pay on time and in full, the report will note this.’
Does This Mean Everyone in SA Has a Credit Profile?
‘Every credit-active person in the country has a credit profile,’ confirms Naudé Viljoen. So if you’ve opened a store account or have a credit card, that includes you.
‘What’s important to remember is that a credit report shows both “good” and “bad” credit behaviour, so “being listed” with a credit bureau is not a bad thing,’ Naudé Viljoen reassures.
You know when you apply to rent a flat and the agent asks permission to do a credit check? They’ll be checking your credit profile. They’re not necessarily worried if you have debt, but are rather looking to see if there are any red flags about your ability to manage your debt. If you’ve been up-to-date with repayments, for example, this will reflect positively: you can be trusted to borrow money.
But Really, Can’t I Just Not Have a Credit Rating – It Seems Scary?
‘It’s not a bad thing!’ reaffirms Naudé Viljoen. ‘In fact, having a credit profile is essential if you want to get credit products like a home loan. It’s a track record of your credit management, and can reflect your responsible credit behaviour. That’s the kind of thing that creditors like banks and stores want to see when they assess your application for credit.’
People who’ve never had debt before will find it hard to be granted credit when they first apply – especially if it’s for something big, like a home loan. That’s because, while you have no history of bad debt, there’s also no history of you managing debt – so a bank, for example, cannot assess whether you’re likely to manage a loan from them well.
If this is you, you may have to apply for a credit card and use it for a while before you can apply for something bigger like a home loan, so you can demonstrate your healthy repayment behaviour.
Fine, Okay – But How is My Credit Info Compiled?
‘Creditors who have or continue to provide you credit supply information (about how you manage your debt or account with them) to a credit bureau, and that is all added onto your profile,’ explains Naudé Viljoen.
‘A credit bureau is a company that receives, stores and reports information on how you manage your credit, including store accounts, loans and credit cards. Credit bureaus must operate in terms of the National Credit Act and must be registered with the National Credit Regulator.’
It’s perfectly legal, BTW, for a creditor to share your credit info with a registered credit bureau.
Can Anyone Access My Credit Rating?
‘No,’ assures Naudé Viljoen. ‘You have to give someone permission to access this info. But, when you apply for credit (or some contracts, like a phone contract), the paperwork involved often automatically includes your permission for the store, bank or creditor to view your credit report.’
And that’s totally legal – in fact, the law requires that creditors check your rating before supplying you with credit. ‘In terms of the National Credit Act, a potential creditor must do a proper affordability assessment before they can give you any credit, assessing how much you owe to who, and how well you keep up with those payments.’
Bottom line: ‘Having a good credit report means you’re more likely to get the home loan or store credit that you apply for.’
How Can My Credit Rating Be Affected?
Well, it’s up to you, says Naudé Viljoen: ‘You determine the info on your credit report by how you manage your credit. It’s best practice to keep your debt at no more than 30% of your income, so that you can pay it in full and on time. These types of good behaviours will give you a great credit score and report.’
Eeek! My Rating Is Baaad – How Can I Fix It?
‘If you’ve been short on repayments or defaulted in the past, this will show on your report,’ explains Naudé Viljoen.
But you can turn it around! ‘The trick is to get consistent in your credit management from now on. With ongoing consistency, like making repayments as scheduled, your report and score will soon improve to reflect this.’
Four golden rules to get back (or stay) on track:
- Don’t apply for debt you can’t afford – you’re basically making it impossible for yourself from the get go!
- Don’t skip payments, or underpay your monthly dues.
- If you can’t afford a payment, or expect to pay late, get hold of the creditor and ask them to help you make a more affordable plan, or shift your debit order dates.
- Forgetful? Set up debit orders so you never miss your payments.
Can I Check My Credit Rating Myself?
Absolutely! In fact, you should – annually.
‘Checking your credit report is a good way of detecting potential ID fraud. Your credit report shows enquiries made against it, by companies where you’ve applied for credit. If there are enquiries listed there that you didn’t make, this could be a sign that someone’s using your ID fraudulently. Report it!’ warns Naudé Viljoen.
But also, knowing your credit rating will help you assess what kind of credit you should apply for – how likely it is you’ll get that store card or loan, for example. And knowing that you have a poor credit score will help you understand that you need to take action, and get on top of your debt. Knowledge is power!
Okay, So How Do I Find Out My Credit Rating?
‘You’re entitled to a free copy of your own credit report from each of the registered credit bureaus once a year,’ advises Naudé Viljoen. ‘There are currently five for a consumer like you, which means you can effectively get five free reports a year.’
Here, all five consumer-orientated bureaus and their contact info:
Compuscan: 0861 514 131 or Mycreditcheck.co.za
Consumer Profile Bureau: 010 590 9505 or Cpbonline.co.za
Experian: 0861 105 665 or Creditexpert.co.za
TransUnion: 0861 482 482 or Mytransunion.co.za
XDS: 0860 937 000 or Credit4life.co.za