Get Your Credit Status Into Shape – 5 Tips To Build Your Status
In South Africa, we have a very sophisticated credit and financial services industry supported by cutting-edge technologies and rating practices. Add to that the introduction of The National Credit Act 34 of 2005, and we are assured that we are protected when applying for credit, whether it’s reckless lending or poor money management skills.
Being in the business of Debt Solutions, one of the most common questions we are asked is, “what makes a good credit status, and how can I get one?” In this article, we answer these questions and more.
Understanding South African Credit Score System
Many years ago, South African credit providers understood that sharing both positive and negative information among themselves through credit bureaus would help both lenders and clients make better credit decisions. For consumers who make better credit decisions, this means cheaper credit.
The negative information associated with your credit record is your judgements and defaults. This is what happens after months of non-payment. On the other hand, the positive information associated with your credit record is based on long-standing credit agreements with reliable account payments, low debt utilisation and smart money management.
Your credit report displays the following information over a 24-month period:
- Each credit agreement you have entered into.
- The date it was opened.
- The opening balance.
- The current balance.
- The instalment value (how much you must pay monthly).
So what does that really mean for us?
When you apply for a loan, the credit providers will access this information and examine your payment history and credit health. Then, the credit provider will determine whether or not to grant you credit and your rates based on how you’ve managed past accounts.
Whether you’re looking to build your credit record, maintain it or improve your credit health, the following tips will help you generate positive credit reports.
- Pay Accounts On Time & In Full: If you pay an account or credit a day late, or even R20 too little, it will reflect as a non-payment, which will bring down your status. If you have missed payments, ensure they are up to date and stay up to date. The best way to ensure this is managed is by putting debit orders in place.
- Reduce Your Debt Use: This means not using all the credit at your disposal. For Example: If you have a clothing account and your credit limit is R1000, keeping your current balance below R600 (60% debt utilisation) and paying regularly is viewed more favourably than keeping it at R950 (95% debt utilisation) and paying regularly.
- Build Account Maturity: if you have been managing your credit for a short time, avoid opening many new accounts too quickly. New accounts will lower your average account age, which will have a more significant effect on your score. Especially when you don’t have a lot of other credit information. Additionally, it’s good practice to keep accounts you have had for many years open. Even if these accounts are no longer in use, you can still maintain them at a very low or even positive credit balance.
- Have A Good Credit Range: Avoid opening too many of the same type of accounts. Unsecured credit, such as personal loans and credit cards, are good in moderation. Having more than one of each can decrease your status even if well managed. Secured loans such as home loans and vehicle finance are more beneficial and will add more to your status if managed well.
- Judgements & Defaults: In the case of defaults, ensure you Pay up outstanding debt and negotiate with the credit grantor to remove the default. You can also ask your creditor to rescind the judgement if the account payments are settled. This will drastically improve overnight.
Why Is A Positive Credit Record So Important? Making time to build your credit status before you apply for credit will save you thousands in interest.
Looking To Build Your Credit Record or Improve Your Current Credit Status?
Credit is not necessarily a bad thing; it facilitates a more affordable way to a better lifestyle. Loans and credit can mean the start of a new business, a new home, car or another significant milestone.
Our Passion here at the Pioneer Group is to give you the assistance you need to successfully and efficiently manage your debt so that you can open up the door of opportunities credit can bring. Get in touch with us directly for counselling, or make use of our debt calculator for more information.