Adv Kate Thambiran @ Lucid Living
Unless you fall within the top 10% of South Africans, based on earnings and wealth, having a clean credit report is crucial for getting on in life. Particularly if you want to get finance to buy a house or expand your business – and even to secure some types of jobs.
Why maintain a Good Credit Report?
Your credit report is a factual reflection of your past and current credit obligations and shows your credit behaviour and payment conduct with your creditors. Before extending credit to you, a bank or retailer will look at your credit report to verify that you have a good track record for managing debt. In the three months to end-December, 146.88 million credit checks were done on 15 million South Africans.
In these difficult times it is more important than ever to keep your credit report clean. Barrett Whiteford, head of marketing at First National Bank’s credit card division points out, “we strongly recommend that consumers who have mismanaged credit, no matter how small, must make a continuous effort to restore their good names.” “The better your financial reputation, the more likely the bank will be to lend you money.”
How to Maintain a Good Credit Report
1. Pay your accounts on time. Even if you are only a couple of weeks late with payments, it will reflect negatively on your credit report.
2. Pay more than the required monthly minimum. The bulk of you monthly payment goes toward interest on your debt and bank fees. The higher your payment, the more of it goes toward your principal balance.
3. Pay off your short-term high interest bearing debt first, like credit cards, personal loans and store cards. Because of the high interest rate, the longer you take to repay the debt the more it costs you.
4. Never buy on credit without making sure you can afford the repayments. Draw-up and maintain a personal budget, this is a tried and tested means of ensuring good money management.
5. Your debt, not including your bond repayments, shouldn’t exceed 15% of your take-home pay, according to most financial planners. For example, if you earn R10 000 a month, the amount you owe on credit cards, car payments and other debts should never top R1 500. If you’re paying more, it may be time to cut back.
6. Before applying for credit, check your credit report first, to avoid nasty surprises. Make sure all information on your credit report is accurate and up to date. Incorrect information will result in an increase in the cost of credit e.g. higher interest rate, larger deposit etc.
7. Review your credit report monthly. The information on your credit report changes monthly, based on your repayments and the action taken by your creditors. Know what is reflected on your credit report, so you can challenge unfair listings or inaccurate information.
8. As soon as you are struggling to repay your debts, because of a change in your financial circumstances, like having loss your job, contact a debt counsellor who will work out an affordable repayment plan with your creditors.
9. Never ignore a letter of demand for payment. This could quickly manifest itself as a blacklisting on your credit report. Contact your creditor to explain your situation. If they are not supportive, get in touch with a debt counselor who will advise you of your options.
10. Always comply with summons to court for non-payment. A judgments on your credit report, ruins your ability to access credit. If the matter has progressed to court, you need professional assistance – get an attorney to represent you.