Credit score red flags | South Africans should make use of their annual free credit report

Being able to afford the new home you’re dreaming of is crucial. Beyond that, nothing is more important than a healthy credit score. This will enable you to obtain a home loan and turn that dream purchase into a reality.

If you’re concerned that previous unsound financial habits might impact your chances of securing this loan, you should start by knowing your credit score – and then work your way up from there.

Did you know South African legislation as part of the National Credit Act entitles you to a free credit report every year, with any one of the credit bureaus listed below. Yet it is estimated that fewer than 5% of us make use of this financial health option.

Choose one that works for you and then enlist expert advice to get your financial habits on track if your rating isn’t that good. It’s the first step in your journey to becoming a homeowner.   

• Compuscan
• Experian
• TransUnion
• Xpert Decision Systems (XDS)

What's included in a credit score and what will you find in your credit report? 

Your credit report is a combined summary of your financial background with an overview of your credit score, financial accounts, profile, and rating. Typically a credit score is  from 0 to 999, and is calculated by using all the details on your credit profile. Metrics used by the different bureaus weight all your financial decisions and payment history, allowing them to collate and detail any potential risk to lenders.

The lower your credit score number, the more risk you pose.

Credit score guideline:  

Things that negatively impact your credit score and report include erratic or non-payments. Payment history is one of the most important contributors to a good credit score. And ironically if you don’t have debt, you won’t have any credit score, which can also put you at risk of not securing a home loan.

So how do you improve or build up a good credit score?

• Regularly checking your credit report to confirm all the details are correct - and while you can do it free at least once a year, experts suggest at least twice a year.
• Make payments on any outstanding credit accounts on the due date. Should you have difficulty in making your payments, you should contact your credit provider to agree on a payment plan, or to reduce your regular payments to an amount that you can afford to pay.
• Put debit orders in place instead of needing to do the payments manually
• Close any old or unused credit accounts
• Reduce or clear any outstanding negative balances – outstanding balances over an extended period of time up your risk factor.

How long does it take to improve your credit score?

If you follow the steps to good credit management, aiming to clear as much of your debt as well as manage your payment profile better – it could be as little as three months before you start seeing improvements in your score.

If you have had a couple of bad experiences with your credit health, it is helpful to know that credit inquiries stay on your credit report for up to two years, whereas more serious activities that you incur, namely late payments, lawsuits, bankruptcy and tax liens, will stay on your credit record for up to ten years.

But it all starts with knowing your rating - so get cracking on that free report today.