Get Your Credit Status Into Shape

I often get asked what makes a good credit status and how can I get one, so let me start by giving you some background. In South Africa we have a very sophisticated credit and financial services industry supported by good technologies and rating practices. Add to that the advent of the National Credit Act and we are assured that we should be protected when applying for credit, both from reckless lending and from ourselves. One reason for this sophistication is that South African credit providers decided many years ago to start sharing both positive and negative information among each other through the credit bureaus to help them make better credit decisions, and better credit decisions means cheaper credit.

The negative information is your judgements and defaults. It’s what happens after months of non-payment. The positive information is based on long-standing credit agreements with good account payments, low debt utilisation and the right account mix. Your credit report will show each credit agreement you have, the date it was opened, the opening balance, the current balance and the installment value (how much you must pay monthly), all this over a 24-month period. So what does that really mean for us? When you apply for a loan, the credit providers look at this payment history to see how you pay your other accounts before they will consider granting you a new loan.Here are some tips to build your status.

• Pay accounts on time and in full. If you pay a day late, or even R20 too little, it will reflect as a nonpayment, which will bring down your status. If you have missed payments, get up to date and stay there. Debit orders are best.
• Reduce your debt use. That means not using all the credit at your disposal. If you have a clothing account and your credit limit is R1000, keeping your current balance below R600 (60% debt utilisation) and paying regularly is viewed more favourably than keeping it at R950 (95% debt utilisation) and paying regularly.
• Account age: if you have been managing credit for a short time, don’t open a lot of new accounts too quickly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, don’t close accounts you have had for many years, rather keep a very low or even positive credit balance.
• Have a good credit mix. Don’t have too many of the same type of accounts. Unsecured credit such as personal loans and credit cards are good in moderation. Having more than one of each can decrease your status even if well managed. Secured loans such as home loans and vehicle finance are better and will add more to your status if managed well.
• Judgements and defaults. Pay up outstanding debt and negotiate with the credit grantor to remove the default, or rescind the judgement if you pay up. This will make your status jump overnight.If you can wait to build your credit status before you apply for credit, it can save you thousands in interest.

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