Understand your credit profile especially in lockdown
By Ayanda Ndimande
Ten million South Africans have bad debt due to three or more missed monthly payments. With the impact of Covid-19, this number is likely to grow.
Now more than ever, it’s critical to take back control of one’s finances. Accessing your credit profile is one of the best ways to glean instant insight into financial pain points and opportunities.
In uncertain times like these, it is important to know where you stand with your personal finances in order to avoid making decisions that could affect your credit score in the long term, post-Covid-19.
Here’s what you need to know.
What Is a Credit Score?
If you’ve ever taken out a loan, registered a bond or applied for a credit card, you’ll most likely have a credit score. Your score tells prospective future financiers how much of a ‘risk’ you are in terms of your past debt repayment behaviour. It looks at your transactional records and gives you a score, ranking you as low, medium or high risk.
What Is a Credit Score Based On?
It takes into account your total debt and debt repayment history – in other words, late or outstanding amounts owed, the frequency and type of credit you’ve applied for, any previous judgements against you, and how much of your available credit you currently use.
Why Should I Care About My Score?
If you’re deemed ‘high risk’, your chances of accessing future credit are greatly reduced. You’re also likely to be charged a higher interest rate on any credit agreements you may quality for, like a credit card, or a home or vehicle loan. And you may jeopardise future job prospects – some employers check your credit score as part of a background check.
What If I Don’t Have Any Credit?
Having no active credit can be a risk as you will have no history of payment behaviour on record which can result in a home loan or car financing loan being declined as the creditor is unable to see if you are able to meet your financial commitments.
How Do I Check My Score?
Every South African is entitled to a free credit report that shows your score and outlines areas for improvement. It’ll show you how much interest you’re paying on various credit agreements and allow you to compare your rating against the average score of credit-active South Africans.
If I’m High Risk, What Can I Do About It?
The best way to improve your credit score, or to maintain a good one, is to make sure that you pay off your debt on time and never miss a single payment. Try to only use credit for good debt on large and indispensable items such as home loans or car loans. If you are comfortable to share your credit profile with a coach or financial planner, they will be able to provide you with a holistic financial plan to get you on a stable financial footing again. As a last resort, you may have to enter into debt review or debt counselling to assist you in paying the outstanding debt in a disciplined manner.
Anything Else to Be Aware Of?
With identity theft on the rise, it’s vital to check your credit profile often to ensure you are the one responsible for all your credit agreements and monthly payments. It’s the best way to ensure that no one has used your identity to benefit from a credit agreement in your name. If this has happened, report it to the police immediately.
Use Our Free Credit Tool
Sanlam and other financial institutions can provide you with a free tool to help you understand your credit profile and ensure that you are aware of your credit standing to make the best financial choices during the Covid-19 lockdown and into the future.
Ayanda Ndimande is the Business Development Manager – Retail Credit at Sanlam.