When it comes to buying a house or car, a bank would consider both your affordability as well as your credit score. Your affordability will determine how much the bank will lend you, but your credit score determines your interest rate, or whether the bank will even lend to you at all. Having an excellent credit record and qualifying for a better interest rate could save you tens of thousands of rands.

According to TransUnion director Garnet Jensen, there are five factors that influence your credit rating. It is important to note that your personal information such as your employer, age, address and demographics have no bearing at all on your credit score.

The five factors they do consider:

• Your payment history: This is a 24-month history of all your payments. This shows whether you made your payments on time, made them late or didn’t pay at all. If you miss payments, this will impact your credit rating.
• Any adverse listings: these are defaults (when you are more than three months behind), judgements and administration orders.
• Number of enquiries: This shows the number of enquiries by credit providers over the last 12 months. An increase in enquires could negatively affect your score.
• Your credit portfolio: This shows the types of credit that you have, both secured and unsecured. This includes store cards, credit cards, vehicle finance and home loans. It also includes your credit utilisation. Using up all your credit lines could negatively affect your rating.
• Length of credit history: This is the length of time that you have been actively using credit. The longer your history, the better for your rating.

How to improve your score

Deal with those adverse listings: The most important factor is your adverse listing. If you have a default, judgment or administration order against your name, this will negatively impact your credit rating. An administration order will remain for five years. A judgment and a default will remain on your profile for one year, or until paid up. The only way to remove these listings it to settle the debt or make it “paid up”. Once you have made the debt paid up, the credit provider must send the information to the credit bureau within seven days to update the listing. The bureau then has seven days from receiving the updated information to update it in their systems. If this has not been done for any reason, you can contact the credit bureau call centre and provide them with the paid-up letter.

Listen to Maya and Mapalo Makhu discussing this topic in the My Money, My Lifestyle podcast.

If the credit provider has not provided you with a paid-up letter, you can provide evidence to the credit bureau that the loan has indeed been paid up. The bureau will need to send this to the credit provider for confirmation, which can take up to 20 business days. If the credit provider does not respond within this period or confirms that it is paid up, the bureau will automatically update the information.

Improve your payment history: The next factor is your payment history. If you are missing payments, it suggests you may not be managing your finances correctly or starting to run into financial difficulty. For example, TransUnion had a case of a consumer who had been turned down for a home loan. He had multiple credit facilities, which were up to date and his existing home loan was nearly paid up. Yet he had started to miss payments on two loans. He missed payment for two months on one loan and then in the following months missed three payments on another loan. This suggested that he was starting to feel some financial pain and following the “pay something” strategy. This often happens when people are struggling to meet all their repayments. They miss one or two payments on one loan, start to meet the repayments again but this time miss one or two payments on another loan. While the credit provider may see it as a once-off ‘blip’, the credit bureau payment history will have an overall view of the total payment profile, so it will be seen as a continuous cycle of missing payments.

To improve your payment history, you need to make sure you meet all your payments every month and that you pay your full installment, unless you’ve agreed a reduced installment with the credit provider. Your payment history will remain for 24 months, so it may take a while before your score is completely ‘clean’.

Check the number of enquiries: The number of enquiries on your credit record could send a warning signal to the bureau – but not necessarily. Any checks you make yourself will not appear on your account. A query from your employer is also considered a ‘soft’ enquiry and would not be considered a problem. Enquiries from an insurer would also not be a concern to the bureau as this is commonplace when people are shopping around for a quote.

What credit providers are watching out for are multiple loan applications. A sudden increase by a consumer looking for loans could indicate that they are starting to face financial difficulty. From a consumer perspective, enquiries could also be a red flag for ID theft. If you see enquiries from credit providers who you have never engaged with, your ID could have been compromised.

Don’t max your credit lines: The type of credit, and your credit utilisation, will also impact you score. A spread of credit including “good” credit such as home loans and car finance would be considered a better risk than having only store cards or micro-loans for example. It is also advisable that you do not max your credit facility and only use around 35% continuously. For example, if you have a store card with a facility of R10 000, only use a third (R3 400) of that facility on a regular basis. If you are at your maximum rate, paying off a small amount only to use it again, that would indicate a stressed consumer. Paying off your credit card in full each month would indicate a healthy consumer.

Create a credit history: One of the frustrating aspects of credit is that you need to have credit to get credit. Store cards are not the only way to create a credit record. Insurance contracts are also included in your credit profile – this includes funeral polices, life cover and short-term insurance. It is better to have just one credit agreement that you maintain well than having multiple accounts which you fail to repay.

The profile of an excellent consumer

TransUnion shared with us the profile of an actual consumer with an excellent credit score.

• They had no retail or clothing accounts. While one or two would not be a problem, too many clothing or retail accounts could be a negative.
• Their 24-month payment profile reflected one late payment on a credit card. Sometimes people forget to make a payment, so a rare missed payment won’t affect your rating.
• They had four enquiries on their profile over 12 months. That is within an acceptable range.
• Their credit utilisation on their credit card was 35%, so they are not relying on credit to survive.

Facts vs myths

• Credit bureaus do not use demographics to determine a credit score. Race and gender have no bearing on a credit score and to do so would be discrimination and against the law. They do not include any information on the number of dependents either.
• The credit bureaus do not know your salary and do not use it for the credit rating. Where you work, whether you are self-employed and how much you earn have no bearing on your credit score. A credit provider, however, will use this information to determine affordability.
• Credit bureaus have a free dispute process available to all consumers, so do not pay good money to a company that claims to do it for you.

Dispute process

As a consumer you can dispute information on your credit record. Once you have logged the dispute with the credit bureau, they will refer the query to the credit provider who has 20 business days to respond. Once the dispute is lodged, the negative listing is masked, and the account is flagged as “under dispute”. If the dispute is found to be valid, the dispute flag is removed, and the negative listing no longer applies. If the dispute is not valid, the listing will however be reinstated. The only other recourse that the consumer would then have is to lodge a complaint with the Credit Ombud.

If you have been a victim of ID fraud and have fraudulent accounts listed on your credit report, you need to request each impacted credit provider to declare these accounts as fraudulent and issue you with a clearance certificate. It would take 30-60 days to update on your credit report. Alternatively you could use the dispute process to speed up the process. Victims should also enquire with the South African Fraud Prevention Services or SAFPS to register as a victim of identify theft.

Credit Bureau contact info

• TransUnion – 0861 482 482
• Experian – 0861 105 665
• Compuscan – 0861 514 131
• CPB (Consumer Profile Bureau) – 010 590 9505
• XDS (Xpert Decision Systems) – 011 645 9100

The Credit Bureau Association is a voluntary industry body, representing 12 of the 14 registered credit bureaus within South Africa. Tel: 011 463 8218, email: enquiries@cba.co.za.

This article first appeared in City Press.