Do you know your credit score? You should!

If you apply for credit of any kind, a home loan, vehicle finance or a cash loan, the credit provider will probably request your credit report from a credit bureau before granting your application.

In this article, we consider the following questions, which are vital to your financial wellbeing: 

• What is a credit report?
• What is a credit bureau?
• What is a credit score?
• What does it mean to be blacklisted?
• How can I improve my credit score?

What is a credit bureau?

A credit bureau is a private company that gathers information relating to your credit history.  A credit bureau provides this information (upon request) to credit providers, such as banks, retailers, and financial service companies. The major credit bureaus are TransUnion, Experian, Compuscan and XDS. The National Credit Act (NCA) regulates credit bureaus.

What is a credit report? 

It is a statement provided by credit bureaus to credit providers containing a consumer's credit history, including non-payments, debts, and court judgements.

What is a credit score?

A credit score is a single number reflecting all the information in your credit report. Financial institutions and retailers rely heavily on an applicant's credit score when deciding whether to grant him/her credit. A high credit score indicates a low-risk borrower; a low credit score means a high-risk borrower.

What does it mean to be “blacklisted"?

The term "blacklisted" means there is negative information on your credit report. Contrary to popular belief, there is no actual "blacklist", containing the names of people who can no longer receive credit. The term simply refers to people who have relatively poor credit scores.

What causes a low credit score?

There are various factors which cause a low credit score, including:

Numerous requests for credit reports

Every time you apply for credit, the credit provider approaches one or more credit bureaus for a credit report. The bureaus keep a record of these enquiries for one year. A high number of queries by credit providers may indicate that you are in financial difficulties.

Complaints about your Credit Report

If you complain about the information in your credit report, the bureau may dismiss it. A record of the dismissed complaint will remain on your credit report for six months or more. 

Negative Classification

If you are a late payer, a bureau may classify you as a "defaulter, late or slow payer". The classification will remain for one year or more. This designation will be highly detrimental should you apply for credit.

Undergoing Debt Review

Should you apply for debt review, the bureau will note this on your credit report. It will remain on your report until your Debt Counsellor issues a clearance certificate.

A sequestration order

A sequestration order against you may remain on your credit report for five years, or until a rehabilitation order is granted.

Administration order

This court order may remain on your credit report for five years or until a court rescinds the order.

Trace alert

A "trace alert" may be noted on your credit report where a credit provider has been unable to contact you.  

Can I improve my credit score?

There are several methods available to improve your credit profile. They include the following:

• If the negative information relates to unpaid accounts or debts, pay the amount owing in full.  Then the credit provider must write a letter to the bureau requesting the removal of the negative information. Note that the credit provider is not obliged to provide such written confirmation.
• If you have one or more judgements against you, it may be possible to rescind the judgment(s) (depending on the facts of each case). Once revoked by a court, the bureau will remove the record of the judgment. 
•  Check your credit report occasionally for mistakes or inaccuracies. It may be that the information on your report is inaccurate or outdated. You can complain to credit providers and credit bureaus. Note that one is always entitled to request one's credit report. It is not only credit providers who are entitled to this information.

How can I maintain a positive credit score?

Here are some suggestions

• Always pay on time and the full amount.
• Borrow and spend responsibly.
• Avoid loan applications to micro-lenders.
• Close any unused accounts.
• If possible, settle accounts before the final payment is due.
• Do not use credit cards or further loans to pay off your debts.
• Avoid using revolving credit facilities such as overdrafts.
• Do not wait for creditors to contact you. If you have difficulty paying, contact your creditors and try to negotiate a payment plan.
• Respond to legal notices immediately.
• If you are over-indebted, seek help from a registered debt counsellor.

We must practice what we call financial hygiene, being fully aware of all the measures referred to in this article to ensure that our credit record remains clean. Doing so will make our lives much easier when is comes to our financial health.

With Legal&Tax you’re not alone

For more information or advice, contact your Legal&Tax debt advisor or a certified Debt Counsellor.

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