2012 May 04 - So What's The Score?
a favourable credit rating is essential to obtaining the necessary
finance to purchase a home. Colin Fibiger, Financial Director, of Property Network says that this is why consumers should know their
credit rating score and how to build it up to ensure that it is looked
upon in a positive light by credit providers and financial institutions.
According to Fibiger, the National Credit Act entitles consumers to one
free credit record check during a 12 month period. He suggests that
consumers should take advantage of this and guarantee that their credit
record reflects the correct information and that their credit rating is
within the complimentary category. Because consumers are able to obtain
a free credit check from each of the bureaus, they will effectively be
able to check their credit rating every four months from South Africa’s
three major bureaus namely Experian, TransUnion and XDS.
So what is considered to be a favourable credit score? "A score that is
660 or higher is generally considered to be a very good score. Consumers
with credit scores within that bracket will have a much higher chance
of obtaining finance at the best possible interest rates. Consumers with
scores below 620 will find it a lot harder to get credit as they will
be regarded as higher risk," says Fibiger.
He notes that there are ways that consumers can maintain an excellent score or build up a less flattering one:
Payment History – The credit rating score is
predominantly the consumer's record of timely repayments on credit
accounts. These accounts would include credit cards, retail accounts,
and installment loan accounts such as a motor vehicle finance, personal
loans and bond repayments. Paying these accounts on the required date
will increase the credit scoring. Other elements of the payment history
that will be considered would be any public records against the
consumers such as payment defaults, judgments and legal suits.
Debt owed – Money owed on various credit accounts will
not necessarily lower a consumers credit score; however, it could make
financial institutions hesitate to grant additional credit to someone
they feel is overextended. Determining a consumer's credit limit for
their profile is reason for the credit rating in the first instance.
Elements that are factored into the score are the total amount owing on
all credit accounts, the type of accounts and how those accounts have
been handled. In certain instances it is better to have a small balance
on an account than no balance, if the account is handled in a
responsible manner. On revolving credit accounts such as a credit card,
it is better not to be close to maxing out on the card's limit. Paying
down installment loans is viewed very favourably as it indicates a
willingness to manage and repay debt correctly.
Time on the books – The general rule is that a longer
credit history will impact positively on the credit score. The score
considers the age of the oldest account as well as the average age of
all the accounts, when specific accounts were established and when the
accounts were last used.
Applying for new credit – Opening several new accounts
in a short period of time will negatively affect the credit score and
indicate a great risk, particularly if the consumer's credit history is
relatively short. This applies to requests for credit as well as new
accounts, the number of credit enquires made by the consumers will
affect their score. Consumers that re-establish credit on old mismanaged
accounts and make payments on time will be able to raise their score
over a period of time.
"Consumers need to ensure that their accounts are in order and that each
credit account they have is managed responsibly. Late-payment behaviour
will reflect negatively on their credit rating, which in turn will
impact on their ability to purchase property in the future. A good
credit record is an asset to any potential homeowner looking to entering
the market," Fibiger concludes.
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