MANAGING YOUR CREDIT WORTHINESS

Since 2001, we’ve seen a huge increase in the desire for “bad” credit.  This is credit that feeds consumerism and the need for immediate gratification.  Methods used in curbing this indulgence have had an adverse effect on the availability of “good” credit (credit used to build assets).   Those wanting to take advantage of the current market opportunities, are finding it difficult to qualify for credit, as credit providers are being selective as to how they part with their limited funds available.  So how do you ensure that you are first in line when it comes to credit extension?
 
1) Reduce Unnecessary Facilities
All credit limits granted, whether used or not, are taken into account when evaluating your affordability.  Hence if you have an overdraft facility that you are not utilizing or a credit card limit of R60 000, where you only need R10 000, reduce this accordingly.
 
2)  Have Some Form of Credit Facility
It is very difficult for banks to assess your credit management if you don’t already have an existing credit facility.   Having no credit facilities will reduce your credit scoring.
 
3)  Pay Your Accounts on Time, Every Time                                                                                            Deirdre Remax Top
If your account is due on the 30th of the month, but you are in the habit of only paying 10 days later, you will be listed as a bad payer.  If one month you pay a double instalment and the next month you don’t pay your account, you will be listed.  Always pay an instalment on your account, on time, to avoid being listed as a bad payer and possibly even having your credit scoring reduced.
 
4)  Avoid Bounced Cheques / Debit Orders
If your cheques or debit orders are returned due to insufficient funds, your credit scoring at that particular bank will be adversely affected, even if you sort out the problem the very next day. 
When applying for credit at another financial institution, they will request 3 to 6 months bank statements and possibly even a “code” from your banker.  If at the time your unpaid items are still evident, they bank may refuse to grant you credit.
 
5)  Check your Credit Record                                                                                                                  
Deirdre Remax Top
Contact the various credit bureaus and make sure that you have not been inadvertently listed.  You are entitled to a free report once a year.  Immediately dispute any adverse record you don’t agree with or sort out any outstanding listing.  This information is available to all banks and they will not grant any form of credit extension if you currently have unresolved debt issues.

TransUnion ITC- Call Centre:  0861 482 482
Experian S.A. - Call Centre:  0861 105 665
Xpert Decisions Systems (XDS) - Telephone:  011 645 9100
Compuscan Information Technologies -Call Centre:  0861 514 131

If there are problems, call the Credit Information Ombudsman at their call centre on 0861 662 837
 
6)  Be Proactive
If you suspect that you will be entering difficult times in future, make plans to release equity on your assets, obtain additional finance and reduce existing expenditure.  Make hay while the sun shines, because once you are in trouble, it will be very difficult to convince anybody that you are worthy of credit.
 
Consider using a Financial Coach to help you prepare a budget and assist you in setting out a plan for your finances.
 
7)  Have Updated Financials                                                                                                                
Deirdre Remax Top
I’m always very surprised at how many self-employed entrepreneurs don’t have updated financial statements and management accounts.  How do you manage your business?  Without management accounts, you are sending out a clear message that you are not on top of the financial aspects of your business.  How do you propose convincing anybody that your business can continue sustaining itself and provide you with future income?  Financial statements and management accounts are the foundation for successful business management.  They reflect the history of your business, your income and expenditure and the flow of funds, and without them it is almost impossible to assess your credit worthiness.
 
8)  Avoid Trading in Cash
If you run a cash business, deposit your cash into your bank account.  Even if you have accurate financials, but the bank is unable to verify your turnover through your bank account, they may refuse to grant you credit.  One can always argue that you are avoiding depositing cash to reduce the bank charges on cash deposits, but then the bank will require your latest tax assessment.
 
9) Operate on a Preprepared Budget
Maybe easier said that done but very easy once done. People who have fallen into the habit of preparing a budget and sticking to it will testify as to how it has liberated them financially and actually provided them with more spending power due to reducing unnecessary expenditure and random spending.
 
10) Avoid excessive inquiries                                                                                                              
Deirdre Remax Top
Every time you apply for a loan or provide your Social Security number for credit, it’s likely your credit report may be pulled. This is called a Credit Inquiry. A large number of inquiries appearing on your credit profile over a short period of time may be interpreted either as a sign that you are opening credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay. Apply for new credit in moderation. A credit coach will help you identify where inquires are on your report and how to best manage them.
 
11) Take Responsibility
One is always eager to blame circumstances and the current market conditions for the position we find ourselves in.  Without sounding insensitive, 80% of all declines are due to applicants not taking responsibility for their credit worthiness.  In the past, credit was easily available, unfortunately to the detriment of a healthy fiscal environment.  Credit is still available, but it is up to you to prove credibility.
Some Final Tips
 
12) Resist the Temptation of Offers                                                                                                      
Deirdre Remax Top
You need to establish a reasonably good financial foundation before a lender will approve you for a mortgage loan. Lenders look for a good credit rating, sufficient funds to make the initial down payment and pay the closing costs, and a stable employment situation.
 
People who have just qualified for a mortgage loan are usually in better-than-average financial shape. If you have recently purchased a new house, don't be surprised if you receive numerous offers from retail stores and other credit card companies offering you pre-approved revolving credit.
 
Be careful about accepting these offers! New home owners often use most of their savings in the process of financing the transaction, and they need everything from linens to furniture to get settled in the home. With all of the immediate credit available, it may be very tempting to just say "charge it." If you're not careful, you could be "up to your ears" in debt very quickly. It takes discipline to reach the goal of home ownership--and it takes that same kind of discipline to maintain financial health after you leave the closing table.
 
13) Applying for new credit with wisdom                                                                                                    
Deirdre Remax Top
Don’t apply every time you see an offer. Getting too much credit too quickly can hurt your credit profile. Remember to print clearly when applying for credit. If your application information is entered inaccurately it can create variations of reported information on your credit report. Consistently use your complete name without any variations. Providing complete, accurate and consistent identification on your credit applications helps set up your credit history correctly from the beginning. It also minimizes the chance that your credit file will be incomplete or mixed with another consumer's file.

SOME MISTAKEN BELIEFS
  • Closing old accounts is good - Many people believe closing old and inactive accounts is an effective means of managing their credit. But they should think twice before closing their older and more established accounts on their credit report. Cancelling old credit accounts can significantly lower a credit rating by making the credit history appear shorter. You should consider storing or cutting up a credit card you don’t intend to use instead of having it cancelled or closed.
  • Paying off a negative record will remove it from your credit report - Negative records such as collection accounts, bankruptcies and late payments will remain on your credit report for 5 to 10 years depending on current legislation. Paying off the account before the end of the term doesn't remove it from your credit report but it will cause the account to be marked as "paid." It’s still a good idea to pay your debts in full. Just be aware the major positive impact in your report and profile will be achieved when the negative records expire.
  • Co-signing for an account doesn’t make you responsible for it - When you open a joint account or co-sign on a loan, credit card or other credit account, you are taking on full legal responsibility. Your credit and capability to acquire new credit will be affected. If the party you co-signed for does not pay their bill it will have the same impact as if you didn’t pay. Any activity on these shared accounts, good or bad, will show up on both parties’ credit reports. If you co-sign for a friend's auto loan and they don't make the payments, your credit profile will be equally hurt by their actions or lack-thereof. The only way to stop this double reporting and negative impact is to pay the loan off or refinance the debt without you as a co-signer. In general, you should think twice before you co-sign for anyone. If you do decide to co-sign, consider keeping it restricted to responsible family members. .
  • Paying off a bill will add points to your credit rating – Your credit rating is achieved by considering a variety of factors. These “formulas” often change based on the economy and the bank’s current view to credit risk. It is very hard to predict how many “points” you can gain by changing one factor. Just keep paying your bills on time, reducing your debts and removing negative inaccuracies from your credit report. Good financial behaviour over time is what you are looking for to build a good credit rating.
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