I have learnt that being debt free does not lead to a good credit score. When I was buying my apartment, this added another six months to the process because I had to improve my credit report and credit score.
A credit report is a reflection of your credit history. Every credit bureau has a different score card. First, do a credit report to get an indication if you are classified as a red for a low credit score, orange for an average score, and green for a good score.
A green score does not always indicate that you will get a home loan because that credit score is combined with affordability. If you have an average credit score, however, you are measured over the average population in South Africa.
If you have a fin score with a fin file there is no history on your credit score. The credit bureau thus cannot trace any information on how you spend your money up until the past few years, therefore, you will have a negative score.
When you go to a retail store and apply for about four accounts maybe only two will be approved. This shows you are shopping around for debt and are desperate. This is a warning to the bank. You are red flagged for being high risk with no cash flow. The bank increases your interest rate which adds to a negative credit score. Treat these store accounts with care. Pay your account two days earlier rather than later because this information stays on your credit profile for up to two years.
It takes time to build a good credit score. However, if you have missed one payment that information stays on your credit profile for up to six months. Unpaid Value Added Tax stays on your credit profile for up to six months.
In April 2014, credit amnesty was introduced which means some of the bad things on your credit score have been wiped out. When you go to a bank to apply for credit, you’ve suddenly got empty spaces on your credit score because they cannot trace what happened with your credit score in the last six to twelve months. This missing information on your profile can cause a delay in getting credit. When there is a risk element involved they increase your credit interest rate, and it will take longer and be more expensive to get credit.
Your credit score consists of five components:
- Length of your credit
- How you treat your credit
- Do you pay regularly and on time?
- The amount of your credit
- Your most recent applications and will also go into
- Applications from your last year or two that you submitted that was successful