- Your offer to purchase your dream house has been accepted – you just need approval on your bond application;
- You’ve test driven your dream car; you’ve signed on the dotted line – and all you need is approval for your loan;
- You’ve decided to splash out and buy the dining room suite you’ve always wanted – and your HP (financing) loan application has been faxed through to the bank.
And then the response you never thought possible: your application for financing has been declined. Why? The answer could lie in your credit report. Given the ongoing difficult state of consumer credit health in South Africa which was evident once again in the latest (Q1) TransUnion Consumer Credit Index (CCI) which fell to its lowest level in three years, credit providers and lenders like banks are likely to continue to enforce the stricter lending criteria. The CCI revealed that the number of consumer accounts that were three months or more in arrears had increased sharply. This is an indication of the pressure consumers are facing from rising interest rates and inflation which are eating into household budgets. TransUnion also found that as a result, credit providers are becoming increasingly selective in who they provide credit to. The CCI is an indicator of South African consumers’ credit health that is based on the ability of consumers to service their existing credit obligations within the constraints of their monthly household budget. When you apply for credit from a bank, retail store or other credit provider, the credit provider will assess your credit health - the risk you pose in terms of your ability to repay the debt. Part of this exercise involves examining your credit report as this reflects many of your financial behaviours and habits. The credit provider will then use the information in your credit report to score your creditworthiness and decide, based on their own criteria, whether or not to grant you credit. An examination of your own credit report before setting out to make a major purchase that requires financing could therefore help you to avoid the disappointment, and embarrassment, of being refused the credit you need or being offered the credit on unfavourable terms such as a higher interest rate.
- Your first step is to obtain your credit report. Every consumer is entitled to one free credit report from each of the credit bureaus every year. You can get your TransUnion report by logging on to www.transunion.co.za. or calling 0861 482 482.
- Next, scrutinize your credit report. Ensure that all the information in it is accurate. If you have any concerns about possible errors or discrepancies, contact the credit bureau that issued the report and lodge a dispute. Provide the credit bureau with as much supporting documentation as possible – receipts or other evidence of payment. The bureau will investigate and get back to you with the outcome within 20 working days.
- If you are certain all the information in your credit report is accurate, identify any areas that could be counting against you. This could be nothing more “serious” than being a little late in paying the amounts due on all your accounts in full and on time every month. However, this type of slow behavior could count against you. Spend the next few months proving that you have changed your behavior by paying your accounts on or before their due date.
- If you are one or more months in arrears on any account, or if you have not paid the full installment due on your accounts, you must rectify that situation as quickly as possible.
- Then, after a few months, obtain another credit report and ensure that it reflects your improved credit behavior. If it does, you should be able to apply for the credit you need with greater confidence.