Understanding your Credit Report

You know how much money you have in the bank, you know what your budget is for groceries and you have a pretty firm grasp on your finances, in general – but do you understand the genuine state of your creditworthiness?

Reviewing your Credit Report is as important an admin task as balancing the books – knowing where you stand and why, when it comes to your ability to maintain a sound borrowing history, and what outcome you should be able to expect if you’re planning on applying for credit soon.

In determining your suitability for credit, credit providers (think banks, retail stores or service providers like the mobile networks) evaluate your credit history - how and when you pay your bills; how much debt you’re liable for and how your credit behaviour stacks up against that of other ‘borrowers’ amongst other things. The summary of these assessment criteria is most often reflected as a three-digit number – your Credit Score.

While credit providers tend to take into account the Credit Scores generated by credit bureaux like TransUnion, each also has their own assessments – and each credit bureau could even produce a different result, depending on how they weight the criteria they’re measuring you on. Credit providers make their own decisions based on that basket of information, and two different providers may make completely contrary decisions based on the same set of facts on an application for the same line of credit – it’s down to the way they assess you.

What’s in a Number?

The information that informs your Credit Score is contained in your Credit Report – a document every South African is entitled to access for free, once per year, from any credit bureau. Your Credit Report is a comprehensive summary of your personal information, employment information, your credit summary and your payment profile.

Your credit summary contains information about the things which could affect your creditworthiness, including your history of defaults, notices or judgements, as well as a snapshot of any amounts you currently owe on credit. Your payment profile offers a summary of all the accounts you currently have open, as well as a 24-month snapshot of how you service them – from your credit card to your cellphone account, insurance and car & home loans.

Reviewing your Credit Report will give you some insight into your suitability for applying for credit, in the event that you’re planning on applying to make any new big-ticket purchases or open new accounts. It’s also important to check your Credit Report for anything out of the ordinary – from your personal details to accounts you may not recognise. While some may be simple administrative errors, others can point to potential identity theft situations, which can have a massive detrimental impact on your personal and financial life.

Shine up your Credit Report

Once you’re aware of your financial status via your Credit Report, you can make changes to improve it, if need be, by paying attention to the major factors on which it is based: your account payment history; your level of debt; negative information; the length of your credit history and your account application and enquiry activity.

• Account payment history: how you manage your accounts and whether you manage to pay the required instalment amount, on time, every month. Your credit report will show which of your accounts you could be paying better attention. Make sure you pay the full instalment due, timeously, to improve your score.
• Your level of debt: how much you owe on credit and how much of your available credit you’re using. To improve your credit score, you should ideally be looking at trying to use less than 35% of the credit limit available to you.
• Negative information: If you’ve had a judgement against you or been under an administration order issued by a court, for not meeting your debt obligation, your credit score will be negatively affected. The good news is that you can rectify this by checking your credit report and paying up those outstanding debts in full, to have that negative information removed and improve your score.
• Length of credit history: how long each of your credit accounts has been open. Maintaining a healthy mix of credit (from store accounts and cellphone accounts, to home loans) over a sustained period will establish a strong, positive credit history – something a potential lender will appreciate.
• Account application and enquiry activity: credit bureaux track how often you apply for credit and how many new accounts you’ve opened, which has an impact on your score from a suitability standpoint. Shopping around for credit - there’s a difference between active (vehicle loans) and passive (clothing accounts) enquiries – can negatively affect your score, as can a host of simultaneous applications, which could indicate a change in your financial circumstances.
• Identity theft: check your credit report and credit score regularly and keep an eye out for anything that doesn’t look right – a line of credit you may not have applied for, or a judgement against you for an account you never opened. Contact TransUnion to highlight inaccuracies, which can be investigated and corrected. If your identity has been stolen, there are steps you can follow to reclaim it and rebuild your credit score.

Since your Credit Report is simply a snapshot of how you’re managing your credit at a particular moment in time, it’s relatively easy to change it by making positive changes to your credit consumption behaviour. You can download your Credit Report once a year for free from TransUnion – and get added insight into your Credit Score for just R80.