The term “credit report” might sound familiar to you, but do you fully understand what it means and that you qualify for a free report each year?
In this blog post we are going to clear up a few credit report misconceptions, but before we do that let’s quickly touch on what a credit report is and why you should even bother requesting one.
What is a credit report?
A credit report is a detailed report of your credit history, prepared by a credit bureau. What is a credit bureau? It’s like the FBI, but these guys are only interested in your personal credit affairs. Honestly, they should just call themselves CBI (Credit Bureaus Investigation)
This is the long and short of it. Credit bureaus collect information on us all and create credit reports which they sell onto banks and other financial institutions, looking to lend money to consumers. These credit reports, along with personal information provided by you, help lenders determine your “credit worthiness” before deciding on whether to grant you a loan or not.
Why should you even care about your credit score?
It goes without saying that if you allow your credit worthiness to nosedive, you simply aren’t going to be able to get access to finance. You should be looking at your credit report at least once a year because it’s going to do the following 2 things for you:
- It’s going to provide you with a credit score
Each of the credit bureaus mentioned below will provide you with a “credit score”. That credit score is based on the information contained in your credit report and has a range between 0 and 800. If your bills are being paid on time and you haven’t been blacklisted, you will have a high score. If you’ve been defaulting on your accounts then your score will be low.
For example: Experian have a score out of 705. If you have a score of 680 then you would be in good shape.
2. You are going to get a list of your accounts and loans with balances owing
Your credit report will also provide you with a list of all your loans (like credit card and home loan) and accounts (like Edgars and Telkom) with balances owing. This is handy because you might have an account which has fallen in arrears and you didn’t even know about it. If you pick it up early enough you can avoid having that account handed over to a collection agency and being blacklisted.
How many credit bureaus are there in South Africa?
There are 4 main credit bureau’s in South Africa:
Misconception 1: You need to pay for your credit report
The National Credit Act makes sure that every South African is entitled to get their credit report free of charge from a credit bureau once a year. All you need to do is visit one of the credit bureau websites, mentioned above, and pop your personal details in.
What you should be aware of
Just a word of warning – while your initial credit report is free, many websites (and affiliates linked to credit bureaus) might look to hook you into a bunch of subscription type offers to help you fix your poor credit score or provide you with further credit options.
Misconception 2: Only credit providers can gain access to your credit report
Fact – You also have access to your credit report and you can get your hands on it annually without any cost.
Misconception 3: Opening a new credit card will lower your credit score
Fact – While this may temporarily lower your score, in the long run it is likely to have a positive effect. As the account ages and you are able to manage it, your credit score will improve. In addition, it is a good reflection on you, should you have a number of accounts open that you are able to manage well, as this is what lenders look at. This further shows that you are a good payer, and this can assist you when you are looking to make big purchases like a home or a car.
Misconception 4 : You can’t dispute information on your credit report
Fact – Within the National Credit Act (NCA) there is provision made for consumers to dispute any information they may find untrue in their report. To prove your case, you will need to produce both proof of identity and proof of the correct information to the credit bureau.
Misconception 5: I can be “blacklisted” by a credit bureau
Fact – Contrary to popular belief credit bureaus do not ‘blacklist’ people. They instead act as an information hubs for consumers. They are merely the dispensers of both negative and positive information with regards to your credit history.
Misconception 6: You can pay someone to repair your score?
Fact – There are quite a few companies out there that “repair credit” but very often they won’t be doing anything you can do for yourself.
There are a few things you can do to improve your credit report, but it is a time-consuming process, as your report is only updated by the credit bureaus every few months. Here’s how to start:
- Don’t simply miss a debt repayment. If you are struggling to meet your monthly debt obligations contact your creditors and try to make an arrangement. It is important to keep them updated as to any payment difficulties you may be facing.
- Don’t take on more credit. If you have a bad credit report, you most likely won’t be eligible to take on more credit anyway, but if you are, avoid it.
- Pay your debts on time. It might be easy to forget to make a debt repayment and only pay it a few days after it was actually due. While this won’t have major impacts on your credit profile, it will show up on your credit report as late payments.
- Pay more than that minimum payment due. This will show that you have good control of your finances, and will reflect well on your credit report.
- Access your credit report regularly to ensure that all the information it contains is correct. If any of the information is incorrect or out-dated, contact the credit bureau to rectify this, as incorrect information could have negative repercussions in the future.
One of the most important factors to building a good credit profile and credit report is to have a good payment history. Avoid taking out unnecessary credit, pay on time and pay more than the minimum amount required, and you should be on the path to a good credit record.
Make sure you get your free credit report.
Until next time.
The Wise About Life Time