Say you have been working hard at improving your credit score by settling outstanding debts and you are now paid up and you want to buy a house or a car. How long before that reflects on your credit score to the extent that you are now considered a “good risk”?
We asked Annelene Dippenaar from credit bureau Compuscan to answer this question and separate facts from myths when it comes to credit reports.
Maya: How soon before your positive behaviour has an effect on your credit record?
Annelene: It’s important to understand that one event won’t necessarily impact your credit profile. It is about the holistic behaviour of the consumer ‒ continuous payment that isn’t just a once-off event, but an indication that the consumer is willing to pay and has the ability to pay their accounts.
Maya: If you’ve settled all your debts, how many months of continuous payments would it take to improve your credit score?
Annelene: All of that will depend on the type of credit that is being applied for. If it’s longer-term credit, the credit provider would probably want to look at 24 months of payment. For shorter-term credit, they may look at a shorter period. So it depends.
Maya: So it’s not like, you’ve paid off your debts and tomorrow you can go and borrow. Generally it’s going to take a couple of months before you’re going to see the credit score reflect that information?
Annelene: Yes. It’s important that the credit provider can see that the consumer is paying on a regular basis, and it’s not just a once-off event.
Maya: When you exit debt review, how quickly can you access credit?
Annelene: Credit providers can see that a consumer was under debt review in the past, so that information will remain on the consumer’s profile. However, immediately after being cleared from debt review, a credit provider can grant access to credit to that consumer. It will depend on that credit provider’s risk appetite.
Maya: I spoke about a car and a house ‒ what would be considered a good score if you were trying to buy a house or a car?
Annelene: It depends on the credit bureau that the credit provider is using. A 650 score, which is a good score at one bureau, can be a bad score at another because they use a different score range. So there’s no single number that applies across the board. Credit providers are aware, however, that a 650 at one bureau means a 750 at another one, so it’s not so much about the score itself; rather it’s about the bracket that the score fits into ‒ for example, a “good” consumer or an “excellent” consumer. Typically, a credit provider would like to see someone in the green, meaning a good consumer.
Maya: Many of my readers report that they have been told they need to take out a credit card in order to improve their credit score. How true is that?
Annelene: Credit providers do want to see some history of payment as evidence of a consumer’s ability and willingness to continuously pay, but it’s not required in terms of legislation to have a credit history in order to be granted credit. The National Credit Act actually says that a credit provider may not discriminate against someone who doesn’t have a credit history. So it does help with the assessment of the consumer’s ability to pay, but it’s not a requirement. It is a good indicator for a consumer to have some sort of history on their report. It doesn’t need to be a credit card ‒ it could be an account like a cellphone, insurance, or any type of monthly service that you pay, to indicate that you are meeting your monthly payment obligations.
Maya: So if you took a credit card with a really low limit of, say, R1 000 per month, and you set up a debit order to pay off the full balance automatically, would that still count towards your credit score?
Annelene: Again ‒ you should have a few months’ record of doing this to indicate a pattern of positive payment behaviour.
Maya: So it will take a couple of months of using your credit card in this way, before it will impact your credit score?
Maya: Thank you so much, Annelene.
Remember: go and get your free credit report, which you can get from each bureau once a year, and if there are any errors, make sure to log a dispute.
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