Although there is no quick fix, she advises those with a poor or scanty credit report to heed seven guidelines should they hope to achieve a healthy long-term credit rating:
- Always pay your accounts on time every month. If you cannot pay this month, be sure to pay next. If you fall two or three months into arrears, credit lenders are less likely to give you credit.
- Pay the full instalment amount that is owed each month.
- Budget. Never buy on credit without knowing if you can afford the repayments.
- Try to keep credit repayments between 20% and 30% of your income. If you earn R5 000 a month, keep all of your monthly credit repayments to within R1 000 and R1 500.
- If you are unable to make a payment owing to unforeseen circumstances, talk to the company concerned and make alternative arrangements to pay back what you owe. You’ll be surprised at how receptive, sympathetic and accommodating credit grantors can be.
- Never ignore a letter of demand for payment. Make a phone call or write a letter to explain your situation.
- Never ignore a summons to court for non-payment. This could become a very serious reflection on your credit profile.
Noting that the objective of a credit scoring record or a credit rating is to assist the credit grantor to assess how you will pay in future, Beetar acknowledges the difficulty of obtaining credit without an established credit history.
“But simply because you have a scanty credit record does not mean you have a poor credit score; it just means there is insufficient data to assess your credit-worthiness.”
Be that as it may, Beetar points out that the various lending institutions have different processes when processing credit applicants with sketchy credit records.
“Your success rate is dependent on each institution’s credit granting policies. We suggest to consumers seeking credit for the first time that they apply for credit at the bank where they have established another financial relationship, such as a cheque or savings account. This is at least a starting point that could yield positive results if you have operated those accounts impeccably.”
A common inquiry understandably seeks to establish a standard credit score with a view to benchmarking one’s own score to that standard.
Beetar’s short answer is that there is no single credit score. Credit grantors may choose to use a standard credit bureau score in their decision making process, but these are specific to each bureau.
Or they may choose to build their own credit score. Credit grantors will take different factors into consideration when building a credit score, based on the company's specific credit-granting policies.
“Be aware,” stresses Beetar, “that such scores differ between credit grantors and may even differ between the type of credit for which you apply – a home loan, credit card, personal loan, etc.”
In the process of allocating a credit score, the bureau or lending institution looks at many different pieces of information. Ultimately, she says, they aim to take a fair view of both positive and negative information.
“Often credit grantors will make use of credit bureau data, their own internal data and affordability data, such as the ratio of installment to income, to build a company specific credit score. A credit score is often specific to a lender and the product offered.”
Because there is no standard credit score, she emphasises the importance of understanding what information is contained on your personal credit report and to understand whether you have any negative information on your report.
“The information stored by a credit bureau is a combination of both positive and negative information – in fact, about 70% of information held by South African credit bureaus is positive information and will actually help consumers gain access to credit.”
Beetar encourages consumers to take advantage of the free annual service provided by the credit bureaus as prescribed by the National Credit Act, giving consumers the right to access their credit reports once a year at no cost.
