If you ever applied for a personal loan, a clothing account or vehicle financing, you can consider yourself having been 'credit checked'. Your credit record, also referred to as your credit score, is an integral part of your financial identity and one of the most important indicators of your financial wellbeing.

Gerrit van Heerde from Sanlam Personal Finance says your credit record should be regarded as one of the most valuable tools to empower yourself financially.

"Your credit record serves as an indicator to financial institutions of the current state of your finances. This helps them to decide whether or not to grant you access to additional credit," he says. "It is also often considered a determining factor by your potential landlord, employer and insurance company."

"Knowing your credit score, and how it is calculated, can help you understand and correct any financial behaviour which could have a bearing on your access to credit. Having this knowledge can also put you in the driver's seat when negotiating interest rates.

"Being vigilant about your credit score will also help protect you from potential fraudulent activity as unscrupulous operators could try to access your credit information," van Heerde says.

How is a credit score calculated?

Your credit score is tracked by three credit bureaus in South Africa: Transunion, Experian and XDS. These agencies gather your financial information and make it available to lenders, potential employers, insurance companies and landlords as an indication of your financial character and behaviour.

There are a number of factors impacting on your final score. These include your overall payment history, any outstanding debt and the number of creditors you have.
Other factors considered in calculating your score include how often you apply for new credit, the time lapse between applications and the type of credit you apply for: for example, store accounts, credit cards, bank loans or vehicle financing. All these factors are calculated using a rigorous credit rating formula which results in your end score.

How do I know what my credit score is?

You can access a free credit report once a year from mytransunion.co.za or creditexpert.co.za. If you require reports on a more regular basis, you will be charged a nominal amount.

Once you have downloaded a report online, you scrutinise each line item and confirm all the details on the report to check for any suspicious or fraudulent activity, suggests Van Heerde.

"If there are any incorrect address details, credit applications or any other information that you are not able to verify, it could be an indication that your credit has been accessed on your behalf," van Heerde says. "You need to communicate any errors to the credit bureau directly for immediate correction."

How will a good credit score help me?

A responsible attitude towards spending, credit and debt is a strong indicator of your character and your likely behaviour towards new lenders, employers or landlords. These institutions or individuals are all able to request an analysis of your credit record.

Insurers, for example, are legally required to access your records to define your risk category. This in turn will determine your insurance premium.

"A good record, and thus a favourable credit reputation, will stand you in good stead when negotiating optimal interest rates with financial institutions, which will in turn save you lots of money," van Heerde advises.

Can I improve a not-so-favourable credit record?

Yes. First off, van Heerde recommends that you pay your accounts on time. If you are unable to pay the full amount, negotiate a lower, more manageable premium with your creditors.

He also advises to pay outstanding balances in full. "If you have negotiated a lower premium, ensure that those payments are met. Don't neglect payment."

It is important to be consistent. Once you have committed to these steps, continue to meet your obligations in full. If you suspect that you may lapse on payments, notify your credit providers immediately.

"Maintaining a good credit record requires ongoing commitment. You need to be aware of the potential impact on your credit score of each financial decision you ever make," van Heerde says.

Recent findings in the 2011 Credit Bureau Monitor report states that 10.41 million of the 19.34 million credit-active consumers in South Africa are classified as being 'in good standing'. Van Heerde says it seems this number is improving year on year.

"This is good news," he says. "It seems more and more South Africans are embracing the significance – and advantages – of keeping their credit records clean."

We don't often consider the state of our credit record as an 'advantage', but your good credit behaviour could just give you the competitive edge when applying for that next job, a new home loan, or vehicle finance.

"You never know – a good score may just give you that extra final push towards achieving your financial dream," van Heerde says. 

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