By Dominique Bowen
It’s the thing that can literally unlock doors or be the invisible obstacle to your life goals if you’re not serious about building it and keeping it in pristine health. Your credit risk score is instrumental in helping potential lenders determine whether or not they should offer you credit, and yet it’s often either treated as an afterthought, and its importance in helping people access credit is not fully understood. It’s important that you know your credit score or rating and to familiarise yourself with the more detailed information in your credit report, in order to know where you stand with potential lenders and how to improve your position by changing your credit behaviour.
When you understand your credit score, you are also in a better position to know your negotiating power. “Credit providers ‘cost’ for risk, which means that you may also be in a better position to negotiate more competitive credit rates if your risk profile is lower,” says Ans Gerber, head of data insights and marketing services at Experian.
It’s not a blanket number
What you may be surprised to learn is that there is no “universal” credit score. “There is no single standard credit score for a consumer in South Africa,” says Gerber. “In fact, credit scores differ from bureau to bureau, and even lenders and banks have their own customised credit scores, which can differ depending on the type of credit a consumer applies for.”
Different scoring models are used across different bureaus and lenders. For example, a 650 score at one bureau may be the same as a 630 score at another bureau. With that said, if you have built up good credit behaviour, you should consistently receive good scores across all credit bureaus and credit providers, says Gerber.
It’s not the only factor lenders consider
Don’t assume that your application for credit will warrant a surefire offer just because you have a good credit score. Your credit report contains more detailed information about your credit behaviour, and if there’s anything on it that raises a red flag for a lender based on their own assessment criteria, they could hesitate in offering you the agreement you’d like.
“A good score isn’t going to guarantee a ‘yes’ from a lender, since they look at many factors. These include affordability checks, certain aspects of credit reports – for example, where there are any adverse entries – and employment status,” says Gerber.
You can’t clear a bad score “just like that”
Given that your credit score is largely driven by payment behaviour history, it cannot be “wiped clean” or reset at the touch of a button. “Even if you pay any amounts in arrears, your credit report will still reflect that you had missed payments. This fact will still influence your score,” Gerber says. In fact, a poor payment history can influence your credit score and report for up to three years, irrespective of whether an account has subsequently been brought up to date.
To avoid this situation, stick to paying the correct amount, on time, for all instalments on all credit agreements in your name. This way, you’ll stay in the green and not only build a favourable credit score, but have nothing to hide on your credit report.
Orders, legal notices and judgements are damaging
If a debt is handed to debt collectors, and escalated further to civil court for judgement, this will undoubtedly have a negative impact on your credit score. This is why it’s much better to proactively contact your creditors when you see the first indication that you won’t be able to honour an agreement than just ignore it and let it fester. “To remedy this situation, consumers need to comply with the order or judgement, in other words, pay up the debt,” says Gerber.
The goldilocks level of credit
You can’t build your credit score without having a diverse range of credit products in your name, but you also can’t build a healthy score if you appear to depend too heavily on credit. “Having too much credit, especially if you are using close to the maximum balance or have several unsecured loans and accounts, can affect your report and score,” says Gerber. “If you are spending too much paying back credit owed, you may be seen as a risk.” If you have a few lines of active credit that you mostly pay on time, and are wondering why your score is lower than expected, it might be that your credit basket is not diverse enough.
Inaccurate information on your report?
Flagging inaccurate information on your credit report with a credit bureau is important for various reasons: it allows the bureau to base your credit report and score on more accurate information plus, if your score is grossly inaccurate (for example, someone has committed credit fraud and you need to clear yourself of wrongdoing), you can dispute it directly and for free with the credit bureau, without paying a third party.
Free credit reports
Surprisingly few South African consumers make use of the fact that they are entitled to a credit report free of charge from each credit bureau annually. The ClearScore app provides free personalised credit information, and several financial services providers now provide credit information as part of their electronic services to clients.
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