Your credit report is an outline of your financial and credit history. Therefore, it is important that you are aware of what it is, how it works and what could possibly affect your credit eligibility and how you can possibly solve it.
What Is A Credit Report?
A credit report is a statement that contains information such as your credit activity and current credit situation. Additionally, it contains your credit score, which is calculated using various criteria such as your payment history and the amount and type of debt you have.
“A credit report provides detailed information on how you have used credit in the past, including how much debt you have and whether or not you’ve paid your bills on time. It also includes your personal information, public information (bankruptcies), accounts, and recent enquiries.”
Reference: Experian.com
Lenders and other registered credit institutions will use the information on your credit report, with their own set criteria, to determine whether they grant you more debt or not. If your proposal for a loan, credit card, store account or vehicle and asset finance is denied, this is mainly due to not meeting their minimum requirements. This could be that your credit score is too low or that your affordability is not enough. Usually, debt applications are denied due to you being considered a “high risk”.
Why Is Your Credit Report Important?
Your credit report has a significant impact on your life. If you have a bad or high risk credit report, it may impact your ability to rent a property, purchase a vehicle using finance, apply for a home loan or even a credit card. It can even hinder your possible job opportunities. It is important that you check your credit report every 6 months to ensure that the information contained on the report is 100% accurate. It is also a good idea to pull your report frequently to track your score. If you are in need of urgent debt you need to ensure your score can help you facilitate that. Consumers looking to buy a car or home on finance will need high credit scores to qualify for these items.
What Should You Look Out For On Your Credit Report?
Inaccurate information on your credit report can negatively affect your overall credit score and credit eligibility. It’s important that you pull your credit report regularly to assess any loans, credit cards, finance deals, or store accounts you may have. If you see any incorrect information on your credit report, report it to that credit provider immediately. If they are not willing to cooperate then report it to the credit bureaus, the credit ombudsman or the National Credit Regulator.
“According to the latest available Credit Bureau Monitor, just less than 0.4% of the over 23-million credit active consumers (In South Africa) obtained a free copy of their credit reports in the three months reviewed by the Monitor.”
Reference: TransUnion
When going through your credit report, check whether you have any judgments, defaulted payments and arrears on your accounts. These can negatively affect your credit score and eligibility to apply for credit in the future. If you are behind on payments, try to make a plan to catch up on these asap.
How To Clear Judgements, Defaults & Arrears
Clearing your judgements, defaults and arrears is crucial to ensure that your credit score improves and that you are able to remain credit active. A judgement occurs when a credit provider takes legal action against a consumer due to non-payment. A court will instruct the consumer to pay an outstanding amount to the credit provider. It’s important to note that court judgments can remain on your credit report for up to 5 years. However, once you have paid the full amount, the judgement should be removed.
In order to clear or reduce the negative impact of defaulted payments, the best approach would be to try and pay what you owe to your lender as soon as possible. With defaults, the notice can stay on your credit report for up to 5 years. However, once you have repaid the amount in full the default will be marked as ‘satisfied’ by the bureau.
Subsequently, with arrears you will have to catch up on the missed payments as quickly as possible. You can do this by increasing your instalment amount to cover the missed payments. As you start clearing the arrears, you should start seeing an increase in your credit score. If you decide to pay the amounts in full, the arrears and any information affecting your credit record will be removed once the credit bureaus receive the funds and proof of payment.
Credit scores are usually calculated over a 24 month period. So even if you have managed to clear all judgments, defaults and arrears, the negative influence will continue to impact your score. This impact, however, will reduce over time. To bolster improvement, focus on maintaining full repayments going forward.
How To Build A Credit Score
If you are new to the credit world and considering how to build your credit score, you can do the following:
- Open a store card from one of South Africa’s retailers at your local mall.. Most large retailers offer these facilities to consumers looking to build a credit score.
- Set a minimum spend amount, and do not use more than you can afford.
- Do not utilise too much of your credit facility as this may negatively impact your credit score.
- Make your payments on time, each month and in full. This will positively impact your credit score and prove to credit providers that you are able to handle credit responsibly.
- Your score will slowly start to increase
If you currently are a credit active consumer and looking to improve your credit score, you can do the following:
- Stick to your monthly repayments.
- Pay your accounts on time every month.
- If you can, make a lump sum payment on some of your more expensive debt such as payday loans.
- Catch up on any overdue accounts you may have.
- Limit yourself on how often you apply for new credit accounts as this can start to negatively impact your credit score.
- Clear all judgments and defaults
What Can Vantage Do To Assist?
At Vantage Debt Management, we are able to provide you with a free credit report and give you some sound financial advice. We can assist you on how to build and maintain a clean and healthy credit record and credit score. Additionally, if you are struggling to stick to your monthly repayments, we are able to assist you with our debt consolidation solutions. Contact us for more information.