Chat boards and web sites are filled with tricks and gimmicks to improve your credit score.

One gimmick that gets a lot of attention is the practice called credit piggybacking. This is where one person, sometimes for a fee, agrees to add you as an approved user on their credit account. This is typically an account with a good history and lots of available credit. The result is that their credit account and history is added to your credit report.

This increases your credit score and in some cases the increase can be dramatic. It amounts to buying another person’s good reputation and posing that it is your own. While I’m sympathetic to the folks who want to improve their credit score, it’s simply the wrong way to go about it.

But what if you have a few late payments or other negative information on your credit report?

First, get a free copy of your credit report from LUCID. Don’t assume your credit score is doomed. There are steps you can take that can boost your credit score. Some of these steps can increase your credit score by 20 points or more in a single month.

Pay Recent Arrear Accounts

The first thing to do is to pay the arrear amounts on the accounts that recently fell a month or two behind. That’s because the more recent the late / non-payment, the more it will lower your credit score.

Request Credit Report Corrections

After bringing arrear accounts current, contact the creditors who reported late payments on your credit report and ask them to make a good faith adjustment to remove or update the late payment information from your credit report. Not all creditors will do this, and it often is a very frustrating procedure. Speak to LUCID (010 590 5617) and they can attend to this for you – they know who to talk to and can get the right result for you.

Paying Debts Make Them Vanish

Pay off accounts where the collection agencies agree to remove all references to the accounts from the credit bureau files, gives you credit score an instant lift. Make this a requirement of your offer to pay off the account. This is best achieved when you have a lawyer negotiating for you and the agreement is in the form of a binding contract. LUCID’s attorneys have extensive experience in negotiating discounts on old debt and can attend to this for you.

Spread Debt Evenly

Evenly spread your balances over your accounts with the lowest interest rates and the highest credit limits. The objective is to not have more than 50 percent of the credit limit used on any one account. That’s because having one credit account nearly maxed out can reduce your credit score significantly. You can also request the creditors to increase your credit limits on your accounts which may help as well.

Check Credit Limit Reporting

Some of your credit accounts may not accurately report the credit limit to the credit bureaus. This reduces your credit score because when that information is missing, the credit score counts the account as being maxed out or if the limit is lower than the actual, the credit score interprets this as high utilization and drops the credit score. Ask the creditor to provide this information to the credit bureaus. In terms of the National Credit Act, credit providers are obligated to report accurate information to the credit bureaus.

Keep Good Credit Accounts

Major bank credit cards, held for a long time, with good payment histories help boost your credit score. Also, don’t close down your cards that have the longest history and the highest credit limits available because these help boost your credit score. Instead, close down those department store charge cards. Revolving department store cards have the lowest credit limits and when used will have a higher debt to limit ratio, which detracts from your credit score.

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If you have bad credit, you probably know who you are. Now that car dealers are making sub-prime (high credit risk) loans again, you’re braced to pay more for car finance.

A buyer with prime credit (low credit risk) paid an average rate of 4.54 percent for a five-year new-car loan in April, according to Experian. The typical subprime buyer paid 9.55 percent — increasing the payments on a R175,000 loan by R413 a month.

Ouch!

But what you may not be ready for is a bigger car insurance bill. Even with a flawless driving record, a change in your credit report from excellent to subprime easily could cost you an additional R210, R350 or R700 a month.

Below we offer some detailed examples on how a poor credit report hits car buyers twice.

“People with a bad credit report can find life is expensive, even if they never plan to borrow another dime,” says personal finance columnist Liz Pulliam Weston.

Bad credit makes life expensive!

South Africa’s credit scores have dropped during the recession. The average score for someone buying a new car or truck fell six points, to 761, by late 2011, says Experian, the credit-reporting agency. The average score of used-vehicle borrowers fell nine points, to 670.

As the economy recovers, though, lenders are more willing to offer loans to those who wouldn’t have qualified a year or two ago. New-car loans to customers with bad credit grew by 13.8 percent last year, says Experian. Used-cars loans to the same group were up 8 percent.

Insurance companies use credit scores calculated from the same credit reports. The calculations are tweaked a bit but largely reflect your credit situation. Insurers pay attention to your credit report because it’s seen as a predictor of claims — and car insurance companies hate claims.

How much more does bad credit add to your insurance cost? There’s no easy answer.

8/10 car insurers use credit scores to calculate your car insurance premiums. Each insurer decides for itself what level of credit is acceptable and when to begin penalizing drivers below that mark.

Meet Nathan and Jenny

Penny Gusner, CarInsurance.com’s consumer analyst, assessed the damage a poor credit score might wreak on two hypothetical drivers: Nathan, who is buying a used truck, and Jenny, who is buying a new car.

Both have unblemished driving records and are looking for “comprehensive” insurance — including fire, theft and all risk.

We assumed that these drivers arranged 60-month car loans at prevailing average interest rates and purchased the cheapest insurance policies Gusner could find.

Credit makes a big difference for both our hypothetical buyers.

Depending on his credit, the car loan could cost him as little as 4.46 percent interest or as much 14.17 percent. At the latter rate, his monthly payment would increase 25 percent compared to the rate associated with top-notch credit.

He could pay as little as R518 a month for car insurance, Gusner found, or as much as R672 — an increase of 31 percent.

After combining the costs of both his car loan and car insurance, bad credit would put Nathan on the hook for an extra R784 a month. Over time, a hit like that takes its toll.

Buyers of new vehicles get slightly lower interest rates on car loans than buyers of used cars do, so that’s one thing in Jenny’s favor. With outstanding credit, she would pay as little as 3.29 percent for her new-car loan. With subprime credit, though, her interest rate would triple and increase her monthly payment by 18 percent.

Her insurance bill could take an even bigger hit: A subprime credit rating more than doubles her monthly insurance cost.

All told, a poor credit report would cost Jenny nearly R1,400 a month.

What can you do?

You might wonder why Jenny pays so much more for car insurance than Nathan does.

Nathan, after all, is a young male. In general, your age and sex matter even more than credit does when determining your car insurance rates.

But where you live matters a lot. Car insurance is much more expensive in Johannesburg than it is in Northern Cape.

A poor credit report simply makes the pain worse.

You can fix it, though.

“Nothing is permanent in the world of credit,” Kate Thambiran, MD of Lucid Living says, “so it’s always possible to rehabilitate your credit even after the most serious setbacks, and it’s worth the effort to do so.”

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The home loan market may be showing flickers of recovery, but don’t count on lenders to make it any easier for borrowers.

While banks are seeing stronger demand for home loans, they’re not loosening up their tight credit requirements, according to the National Credit Regulator’s (NCR) latest stats.

According to the NCR’s statistics banks made basically no change over the last three months in their credit standards for prime home borrowers — those who have relatively high credit scores and well-documented financial statements. And for sub-prime borrowers, credit standards tightened a bit since January.

The NCR’s quarterly survey, however, showed more banks eased standards for unsecured consumer loans.

To understand just how much times have changed from a few years ago, Lucid conducted research with the 4 major banks and asked home loan officers a series of questions about their likelihood of making home loans to certain borrowers today compared with 2006, at the height of the market.

About 60% of lenders said they were “much less likely” to approve a home loan for a borrower with a credit score of 620 who made a down payment of 10% — a big change from the mood in 2006. Even for an applicant with a respectable credit score of 680 and a 10% down payment, 21% of lenders said they were much less likely to say yes today compared with 2006. And 29% said they were “somewhat less likely” to approve that application.

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As part of Consumer Rights Month, the National Credit Regulator (NCR) has urged consumers to be aware of their rights when it
comes to credit agreements.
“It is your money and therefore, it is your right as a consumer to have full knowledge of all credit agreements you enter into,”
says Education & Communications Manager at the NCR, Cornie Tema.

In South Africa, March is dubbed the Consumer Rights Month. The National Credit Regulator in conjunction with the Consumer Protection Forum (CPF) is embarking on programmes aimed at educating South African consumers about their rights and obligations. The international theme which has been adopted is “our money, our rights: campaigning for real choice in financial services”.

Consumers have rights; however, they also have obligations when entering into credit agreements. Obligations such as honouring the terms and conditions of credit agreements they enter into.

“Drawing up a budget to assess whether you will be able to afford the credit you intend taking, comparing deals between credit providers and understanding the terms and conditions of credit agreements are important steps before signing a credit agreement”, says Tema.

He says when taking out credit, consumers should always ask for a pre-agreement statement and quotation which clearly shows the borrowed amount, deposit payable if any is needed, interest charged, period of repayment, date of first installment, date of last installment etc.

“Additional charges such as initiation fees, monthly service fees and credit life insurance should also be stated in the pre-agreement statement and quotation, he adds”.

Under the National Credit Act, consumers have the right to receive information and documents in plain, simple language. “This means that the content, meaning and importance of the documents must be easy to understand.

Consumers also have the right to receive any documents required in terms of the NCA in an official language of the consumer’s choice to the extent that it is reasonable”, adds Tema.

“Do not sign unless you fully understand the content including the terms and conditions of the credit agreement”, adds Tema.

“While the National Credit Act provides that every person has the right to apply for credit from any credit provider, it does not prevent credit providers from turning down your application.” However, if your application is declined, you have the right to be provided with reasons on why it was declined. “The credit provider should provide you with reasons on why they are declining”.

Tema further explains that consumers have the right to access and challenge information held by a credit bureau. “Consumers are entitled to a free copy of their credit report from any of the eleven registered credit bureaux when they request for it.

“You also have the right to be informed if a credit provider intends to report negative information about you to a credit bureau before the credit provider actually does so. Therefore, it would be of benefit to all consumers to check their credit reports regularly to know what it entails. By checking your credit reports, you will be able to pick up if there’s any incorrect information on your credit report”, adds Tema.

He says one of the most important aspects of the National Credit Act is that it gives consumers the right to get assistance when they are over-indebted. “If you are experiencing difficulty in servicing your debts, act as soon as possible,” he says. “Don’t wait until you start receiving final demand letters. “Contact a registered debt counsellor in your area for assistance soonest.”

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Nomsa Motshegare, Acting CEO of the National Credit Regulator (NCR), said earlier this month that the credit bureau statistics reported for the quarter ended December 2011 suggest the need for caution.

Although seasonal factors may be contributing to overall credit performance, the NCR is mindful of the current trends and activity levels reflected in the statistics for this reporting quarter. This will be closely monitored to assess whether the increases evident in impaired performance categories is likely to prove consistent.

As at the end of December 2011, credit bureaus had records for 19.34 million credit-active consumers, an increase of 1.3%
over the 19.10 million of the previous quarter.

Consumers classified in good standing increased by 142,000, to 10.41 million consumers, an increase of 1.4% quarter-on-quarter and 5.2% year-on-year.

The number of consumers with impaired records (3 or more months in arrears or with blacklisting or judgments), increased by 100,000 to 8.93 million, from 8.83 million in the previous quarter. The number of impaired accounts increased by 366 000 to 16.91 million, from 16.54 million in the previous quarter.

The number of credit reports issued to consumers increased to 103,403. Of the total credit reports issued, 81.8% (84,561) were issued without charge, and the remaining 18.2% (18,842) were issued with charge.

There were 8,826 disputes lodged on information held on consumer credit records for the quarter ended December 2011, which was an increase of 24.8% quarter-on-quarter.

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During January, 35,347 civil judgments for debt amounting to R315.5 million were recorded.
Stats SA said there was a 25.3% decrease in the total number of civil judgments recorded for debt in 2011 compared with 2010. The fourth quarter of 2011 reflected a 23.8% y/y decline, while in December 2011 there was a 26.5% y/y drop to 27,131.

During 2011, 503,528 civil judgments for debt amounting to R5.1656 billion were recorded.

Stats SA also added that the number of civil summonses issued for debt for January fell by 8.9% y/y to 73,550. This compared with a 17.9% decrease in 2011 to 1,057,444.

A civil judgment refers to the final order of a court in a civil lawsuit, while a civil summons refers to a legal document informing an individual that a lawsuit has been filed against him or her.

A civil judgment process, is the course of action taken by a creditor to enforce their rights under a credit agreement. The civil judgment then permits the creditor, to repossess your assets or garnishee your salary, to settle the debt owed to them.

The National Credit Regulator’s Credit Bureau Monitor (Q4, 2011) highlights that 8,93 million are blacklisted (i.e. have an impaired record) on credit bureaus. An increase, for the quarter, of more than 100,000 people, who have fallen behind on credit repayments.

Despite that fact, the continuing fall in the number of civil judgments seems to indicate that creditors are holding back on taking legal action, that results in a civil judgment. So how are creditors enforcing their rights, under credit agreements where the consumer is not making repayments? Clearly, creditors cannot avoid legal action against all customers in default – so what is their plan?

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Gauteng motorists with overdue traffic fines could get blacklisted on their credit reports.

And the National Credit Regulator (NCR) says its hands are tied if it wants to intervene as outstanding debt from traffic fines is not governed by the National Credit Act (NCA).

“Fines are not subject to the NCA because they are not a credit agreement,” said the NCR. “Yes, there are conditions for blacklisting such as providing the consumer with notice thereof.”

The threat to blacklisting motorists is contained in thousands of letters of demand being sent out with fines dating back to 2010 by debt collectors hired by the Road Traffic Infringement Agency (RTIA) to recoup more than R500 million.
The debt collectors threaten to report motorists with overdue accounts to the credit bureau – warning this could “negatively affect your personal credit report”.

“It may also adversely affect your credit status and your ability to access new finance from a bank,” read the notices.

“This process of debt collection is implemented as a more efficient and acceptable mechanism. It is the prerogative of the registrar… to authorise a warrant of execution which in themselves are a harsher penal provision,” said the agency’s registrar Japh Chuwe. “On the other hand debt collection will seek to encourage compliance from infringers by reminding them of outstanding debts and allow them further opportunity to clear their records.”

Chuwe said the agency was not in contravention of any act by engaging in the debt collection process and blacklisting offenders. He added that his agency was awarding 15 percent of all payments received under the terms of agreement to the debt collectors.

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Trying to improve your credit score can seem impossible when lenders are fearful and you’re strapped for excess cash. But don’t give up hope.
“Focus on where you are right now and do what you can with what you have,” said Adv Randolph Samuel, CEO of the Credit Foundation of South Africa, a Not-For-Profit organisation that aims to educate South African’s on smarter money management.

You can make progress—even on old, negative debt—and start to rebuild your credit score and therefore, your future.

Here’s how to do it step-by-step:

Work with the credit bureaus.

Errors happen with debts paid after they’ve gone to collection agents. The credit bureaus might need to update the debt as “paid in full” instead of deeming it “outstanding.”

Other times credit bureaus fail to take off old defaults or judgments, which should only stay on your credit record for two to five years.

Review your credit report regularly and challenge any inaccurate or out dated information. No less than 3 research studies in the U.S have revealed that up to 70% of credit reports have errors. In 25% of those cases, the errors are so serious that they prevent a consumer from accessing finance, said Samuel.

Credit Counselling.

Don’t think you can wave a magic wand and make your bad credit history disappear, said Samuel. If you have outstanding debts, you need to re-pay them. Credit Counselling companies are effective in negotiating with creditors and lowering the principle you owe.

Outstanding debts can be reported to the credit bureau as “not paid,” “paid in full” or “in dispute,” and all impact differently on your credit score.

For example, if you make a payment to the collection agency, you might be able to get the status changed  to “paid in full” which reflects better on your credit score than “not paid”.

Using credit cards.

Credit utilization, particularly on credit cards, has a major influence on your credit score.  If your limit is R5000, don’t use up R4500, which will look like you’re using 90 percent of your available credit and put another ding on your credit score. Credit utilization of below 30% is welcomed by banks and indicates that you are using your credit responsibly. anything above 70% is viewed negatively.

If you’re four to five months behind on your credit cards, a Credit Counselor can also negotiate the principal on the debt, said Samuel. Reaching a settlement won’t improve you credit score per se, but it will help you get more affordable monthly instalment and mean that you pay off the outstanding balance quicker – which in the medium term will improve your credit score.

Start paying your bills on time.

This makes a huge difference on your credit score, and has become even more impactful in the last two years, said Samuel. ”It’s one of the most predictive things of whether someone will pay their debt,” he said.

The senior vice president of research for VantageScore, a credit scoring firm, told Time’s Moneyland that paying your bills on time makes a 50-to-60 point difference on your credit score.

Don’t worry as much about old debt.

The older the debt, the less it affects your credit score.

So if you have two items on record, both of which you’d like to dispute, focus on fixing the newer item. That’s the one that’s weighing you down more.

The same applies to other black marks like defaults and judgments.

Try not to apply for too much credit at once.

Each hard inquiry, or pull of your credit report by lenders, counts against your credit score.
So if you plan on applying for a loan, go for one or two you think you’ll qualify for instead of taking the shotgun approach.

Samuel recommended discussing your needs with a Credit Counselor, who can advise what kinds of loans and credit cards you might be eligible for, depending on your credit history.

Lower your utilization rate.

You should only be using about 30% of the credit available to you, said Samuel. Using too much will be a big knock against your credit score.

He recommended either paying down your debts or increasing your available credit to improve your credit utilization.

Keep in mind, applying for additional credit will result in a hard inquiry and slightly lower your credit score, so don’t apply for too much credit from many sources at once.

And if you choose to pay off your debt, pay off the cards with the highest interest rates along with the ones you’ve already maxed out.

Be Patient

Letting time pass while you make your payments on time is your best bet for upping your credit score, said Samuel.

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Couples who are celebrating the Leap Year by getting engaged are being urged to spend time planning for their ‘financial futures’- after new research from credit scoring specialists Callcredit revealed that significant numbers of people are in the dark about their partner’s finances.

With the prospect of a wedding, honeymoon, new home and perhaps even starting a family to pay for, building a new life together can be an expensive business, so it is vital that couples know where they stand financially.

But the research, carried out by YouGov, suggests that more than a third (34%) of UK adults who are in a relationship have no idea about their partner’s financial history – and could be putting their future financial stability at risk as a result.

The online survey of 2057 UK adults found that:

• 17% of people believe that their partner’s credit report is none of their business;
• One in ten (10%) do not know how much their partner earns;
• Nearly a fifth (18%) do not know how much debt, if any, their partner has.

The research also found that although more than half (53%) of couples have some form of joint finance, such as a shared bank account or mortgage, many UK adults (43%) did not know that joining finances in this way would automatically create a ‘financial association’ on their credit report. Once a financial association is established, lenders may take both partners’ financial histories into account when assessing future requests for credit, even if later applications are made in only one name. As a result, if one person has a poor credit report, they could damage their partner’s chances of getting finance.

Owen Roberts from Callcredit said: ”While this is undoubtedly an exciting time, it is also potentially an expensive one, so it is important that couples understand their financial strengths and weaknesses – especially if they’re planning to take on any joint borrowing, such as a loan for the wedding or a mortgage on a house. Pooling your resources with your partner can make sense in many cases, but for some, it may be more sensible to keep your finances separate, particularly if one partner has a poor credit report.

“Although it is encouraging that the vast majority (66%) of couples have some knowledge of their partner’s financial history, only one in five (20%) of these have seen what is on their partner’s credit report, which is the most reliable way of assessing credit-worthiness. We’d urge all couples to check their credit reports before deciding whether to apply for a joint loan, mortgage or bank account together.”

You can see your credit report online with LUCID.

To make sure that ‘something borrowed’ doesn’t leave you feeling blue, Lucid Living has put together its tips on planning your financial future.

The Big Day

“The average wedding costs around R 200,000 – a significant sum for any couple to find – so shop around for the best deals on everything from savings accounts to credit cards,” says Kate Thambiran, MD of Lucid Living. “If you need to borrow money and have a good credit report, look for low-interest and cashback credit card deals. Beware of applying for too many and only borrow what you can comfortably afford to repay.

“It is also worth exploring ways to reduce the cost of the wedding, such as by asking friends and family to help out with catering, haggling with suppliers over prices, or asking guests to contribute towards a honeymoon instead of asking for traditional gifts.”

Setting Up Home

“Whether you’re renting or buying together, it is likely that you will be credit checked by your lender or landlord, so it is vital that you check your own credit reports before you apply,” says Thambiran. “With a mortgage, if one partner has a poor credit report, you may have to apply under the other partner’s name only, but this may reduce the amount you can borrow, as only one salary will be taken into account, and you may need to save for a bigger deposit to make up the shortfall.

“You can improve your credit report by making sure you meet at least the minimum repayments on any debts, closing any inactive accounts and correcting any errors on your credit report.”

Daily Life

“Sit down with your partner and work out a budget for your joint expenses, such as groceries and household bills,” says Thambiran. “If you’ve checked your credit reports and you’re comfortable taking out a joint bank account, set it up so all your regular bills come out of it. It may also be worth you both paying regularly into a joint savings account to cover unexpected bills, such as a boiler breakdown or a car problem.”

Starting a Family

It is estimated that first-time parents spend nearly R18,000 on baby-related products before their child is born – and the cost of bringing up a child is around R2,000,000. “Save money by shopping online for baby clothes and goods – auction sites like eBay are good for second-hand products,” says Thambiran. “But remember to always check that the site you’re buying from is genuine and secure, to protect against fraud, and if an offer looks too good to be true, then it probably is.

“If you can afford it, it is also worth looking into child-friendly savings accounts so you can build up a nest egg for their future.”

Growing Old Together

“It is never too early to plan for retirement,” says Thambiran. “If you don’t already have a pension, speak to a financial advisor to find out the best options for you. It is also worth checking whether your company already has a pension scheme you can join, especially as some companies will match the contributions you make.”

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2057 adults of which 1507 had a partner. Fieldwork was undertaken between 7th – 9th February 2012. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

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Financial institutions treat their customers fairly, or that’s what they would like us to believe. In reality not all play fair , which has prompted the Financial Services Board (FSB) to crack down on errant firms through its Treat Customers Fairly (TCF) regulatory regime.

First mooted in 2010, TCF is to be implemented in 2014, says Leanne Jackson, head of the initiative, which lays down six outcomes firms will have to adhere to. The outcomes, she adds, have been copied “virtually verbatim” from the UK Financial Services Authorities’ (FSA) TCF regime, which came into force in 2009.

The FSB’s TCF will have enforcement powers providing “a credible deterrent to misconduct”, says Jackson. This will include naming and shaming errant firms and, potentially, fines and suspension or withdrawal of licences.

While applauding the initiative, 10X Investments CEO Steven Nathan expresses what is probably the view of many consumers: “It’s an indictment on the financial services industry that it has to be compelled to treat customers fairly. It beggars belief that an industry must be forced by threat of sanctions and penalties to do so.”

You don’t have to look far to find signs that many consumers are being taken for a ride.

One can of worms is credit life insurance, a lucrative area for many firms offering credit. Though interest rates are limited under the National Credit Act, other fees and costs are not, providing a handy way of leveraging up returns. For example, in a typical furniture credit deal interest amounts to about 24% and credit life insurance and administration fees take the total to around 60%.

The FSB, National Credit Regulator and national treasury are jointly investigating credit life  insurance practices, says Jackson. In the UK, misselling of credit life insurance has come back to haunt the banking industry, which is coughing up £7,4bn in compensation to customers.

The UK’s National Consumer Federation has levelled criticism at the FSA’s TCF regime. The body concluded in a recent analysis that TCF has “achieved little and has had little or no impact on management [of financial services firms] to modify their behaviour with resultant benefits to consumers.”

It is not that the FSA lacks clout. In enforcing TCF, the authority has imposed huge fines on many firm s for misselling. In the largest yet, the FSA has just dished out a £10,5m fine to banking group HSBC for misselling products. And Barclays was fined £7,7m in early 2011.

Commenting on the failings of the UK’s TCF, National Consumer Federation CEO Mike O’Connor has said: “The flaw is not the basic concept, or the principles underpinning it, but the fact that it was not fully implemented and properly enforced.”

“We have engaged with the FSA and researched its TCF,” says Jackson. “They could have done better with the rollout. We hope to be able to avoid some of their errors.”

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