Your biggest credit conundrums – answered

Understanding your credit health is one of the most important factors in managing your finances. This is because it gives you insight into your debt, your borrowing ability, and your financial history. While many understand this, there are still many questions on how to do just that.

Justmoney looks at some of the biggest and most common credit questions and supplies the answers you’ve been seeking.

Tip: To access your free credit report today, click here.

1. What is included in my credit score?

Your credit score holds information about your credit behaviour. This means it documents your payment history, your past and current debt, your payment defaults, and your personal information, such as occupation, contact details, and your address.

It also includes whether you have had any legal action taken against you by your creditors and whether you are under debt counselling. It also includes a list of known residential, business, and mobile phone numbers on record, where you have lived and details about current and previous employers.

2. What impacts your credit score?

There are various factors that affect your credit score.

According to a spokesperson at TransUnion, these are among the biggest: your payment history, the age of your credit, the types of credit you have, what percentage of available credit you have utilised, your current credit behaviour, and newer credit inquiries.

While these are all considered, each factor is weighted differently when it comes to working out your credit score. Lenders, in turn, use this information to approve your potential credit applications.

Your credit score is indicative of the type of payer you are and lenders are therefore able to use this information to calculate the risk of lending money to you, according to TransUnion.

3. What is the role of a credit bureau?

Credit bureaus are responsible for the generation and hosting of credit scores and report data.

In South Africa, there are four nationwide bureaus: TransUnion, Experian, Compuscan, and XDS. These bureaus store credit information of all credit-active South Africans that lenders use to make decisions about credit applications.

Credit bureaus, however, do not get involved in the lenders’ decision making or in their criteria development.

4. How can I access my credit report?

Every South African is entitled to draw one free credit report annually from each credit bureau. You can sign up to each of the credit bureaus and access your report through their online portal or you can sign up to a third-party credit management tool, which allows you access to all reports across bureaus in one central place.

It is important to know that no one may, without your permission, access your credit report.

This is why – when applying for credit – there is generally a section where you are asked to give permission to the lender to access your credit report. Employers must also ask for permission when access to your report is required.

5. How do I build my credit score?

There are various ways in which you can build a good credit score. According to Experian, here are a few:

• Open a credit account: Opening an account – whether it be a store account or a credit card with a small spending limit – and making small purchases that you are able to pay off fairly easily is key. This will help build a responsible credit profile.
  
  
• Report existing payment history: Look into whether you can request your utility and rent payments to be included in your credit profile to create a payment history.

6. How do I improve my credit score?

Everyone’s profile differs, as does their payment behaviour, types of credit, and financial situation. However, there are key ways in which you can improve your credit score irrespective of your unique credit profile.

These include:

• Pay your debt on time: This goes a long way in ensuring that your credit score reflects well as it speaks to the kind of payer you are and how well you manage your debt.
  
  
• Review your information: While it is uncommon, there are instances where your credit information or personal information is incorrect. This may have a bearing on your score, which is why it is vital to access and review your credit report regularly to avoid errors slipping through.
  
  
• Be realistic about your affordability: Understanding your finances and what it is you can and can’t afford goes a long way in correctly managing your financial health. This means that before applying for a loan or for any credit, you need to be realistic about what it is you can afford.
  
  
• Keeping unused credit facilities open: Even though you may have settled the balance on an account, keeping it open and simply managing the monthly or service fees can speak to your ability to responsibly manage your money and credit.

For more information on how you can improve your credit profile, click here.

Understanding your credit score and profile is the first step towards correctly managing your finances. It is also important for when you are looking to qualify for bigger debt like a home loan or vehicle finance.

Improving your credit knowledge is vital. To better understand the difference between a loan and credit facility click here.