Credit Reports

Think of your credit report as a financial passport. When you approach lenders for credit or a loan, then the information in your report will be used to determine whether you qualify for your requested loan - or not.

• Credit Ratings

  The most important feature on your credit report is your credit score or your “credit rating”. Your credit score is a value that is calculated according to how well you pay your accounts. A “healthy” credit score depends on the model that is used by each credit provider (not every credit provider calculates a score the same way).

• Credit Health

  A good credit report with a healthy score will increase your chances of being approved for a credit card, a loan, vehicle finance, a mortgage, and store credit. A “bad” credit report with a low score will lower your chances of being approved for loans, credit, and finance.

Credit reports are a record of your financial history. Most reports are compiled from the moment you are approved for your first credit application. Your credit score is generally determined 6 months from when this first credit was approved.

Lenders refer to these reports during your loan or credit application process. If your report contains a history and a score that’s too their liking, then your application stands a better chance of being approved. Your report will also determine the interest rate you are offered and then better your score, the lower your interest rates will be.

The information that’s kept on your report can include:

• Your personal details (full name, birth date, ID number, contact details)
• Your current and historical credit accounts (includes payment history, your current balance, and dates the accounts were opened and closed)
• Any grievances or judgements that are in your name (late payments or unpaid debt)
• In South Africa, there are four main credit bureaus who issue credit reports, namely:
• TransUnion
• Compuscan
• Experian
• Xpert Decision Systems

When it comes to making an inquiry on the status of your report, there are two types of checks that can be applied, namely hard checks and soft checks.

When a lender needs access to your report to review it as part of their decision-making process, then this is a hard check. It’s important to note that hard checks will appear on your credit report and can influence your credit rating. This means that you want to limit any unnecessary hard checks.

Soft checks occur in cases where you make an enquiry into your own credit or when a lender or credit card company needs the information to pre-approve your request. Soft checks will not appear on your credit report and they have no effect on your credit rating.

A credit report is a necessary document and without a report in your name, you will not be easily approved for loans or credit. Like we mentioned above, your credit profile is used to determine whether a lender will be taking a huge risk by lending you money or if you seem like a reliable individual who has the means to pay back your debt promptly.

Essentially, your credit report will be reviewed when:

• You want to apply for credit at a bank
• You want to take out a loan
• You want to apply for a mortgage
• You need vehicle financey
• You want to take out store credit
• You want to apply for insurance
• You need a cell phone contract

Credit reports can also be used for your personal use. They can help you to understand your credit data, show you how to monitor accounts, manage debt, and improve your credit profile.

A regular overview of your credit reports held by the different credit bureaus will allow you to compare the information that each institution holds. This comparison may help you if you ever need to challenge the accuracy of the information contained in each profile.

Furthermore, by checking your credit reports regularly, you can monitor to see if someone is using your name or details fraudulently. Thus, stopping any fraudulent activity in its tracks before an overwhelming amount of debt has been accumulated.

When considering your application for a loan or credit, a lender will place much emphasis on your credit score. Their processes feed on the reasoning that the higher your score is, the more likely you are to settle your bills on time. And the lower your rating is, the less likely you are to repay your debts timeously (if at all).

What’s important to note is that each credit provider defines a qualifying score differently. One lender may consider you a great candidate, while others may think your “good” rating is still too low for their high standards.

The following can be used as a credit score guideline:

• 650 - 999: Excellent credit (minimum risk)
• 620 – 649: Very good credit (low risk)
• 600 – 619: Good credit (average risk)
• 581 – 599: Sub-prime (high risk)
• 1 - 580: Poor credit (very high risk)

Your credit score is calculated using a formula that includes your payment history, the age of your accounts, the amount you currently owe, the number of hard enquiries you have made, and any judgements or defaults that are in your name.

If your credit report includes a rating that you and loan companies are not satisfied with, you can work on improving your score by:

• Limiting the number of hard enquiries made into your credit record
• Ensuring that you do not miss a single payment
• Making your payments on time
• Having a few different credit accounts
• Ensuring that your accounts are small and manageable and that they do not exceed an unreasonable debt-to-income ratio
• Not having any grievances in your name

Another way you can improve your credit score is to keep your accounts open and pay your debt over time (within the terms of each agreement). Even if you have the funds available to settle your debt immediately, credit bureaus favour those who choose to keep an account open by continuing to pay smaller instalments.

When keeping an account open, a good idea is to pay just slightly more than your billed monthly instalment. At the same time, try to stick to paying your accounts on the same date each month. If you can pay more than the monthly minimum requirements, then creditors will notice that you are eager and willing to try and settle your debt.

For example, if you owe R1000 on a store account and your monthly instalment is R100, you could make a payment of R120 each month. You can also dedicate yourself to paying this amount on the 1st of every month.

Did you know that closing a credit account that you have battled to pay in the past will not erase your bad credit history? A better solution is to continue to keep the account open and ensure prompt and accurate future payments.

Every individual is entitled to one free copy of their credit report from each of the official credit bureaus once every year. If you would like to view your report more than once annually, then the credit bureaus will charge you a small fee. This fee can range anywhere between R20 to R50 and will vary depending on the credit bureau you contact.

Some comparison sites will draw your credit report from all four bureaus for a standard once-off fee. This is useful when you want to compare your reports or challenge a report from one of the providers that does not seem accurate.