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Baffled about why your credit rating is so low? These could be some of the reasons why

25 April 2022 Old Mutual
John Manyike, Head of Financial Education at Old Mutual

John Manyike, Head of Financial Education at Old Mutual

It’s not overstating things to say that a good credit record and rating are the keys to your financial future. But even though you can access this information, there is a chance that you may find a rating that is lower than expected when you do. The question then is ‘ How did this happen?’

Quite simply, says John Manyike, Head of Financial Education at Old Mutual, pointing out that it can be a simple misunderstanding that leads to negative reports appearing on your record. Take the simple process of electronically paying a monthly bill, for instance. 

“If a bill must be paid on the last day of the month, you may think that by sending in your payment on this date that you are a good payer. The problem is that the transaction may only be completed the following day or later. Your credit record will show that the payment was late. It is a simple misunderstanding but repeated often enough, can see you being listed as a ‘bad or late payer.’  

“Once on your credit record, these comments are in place for several years and can affect you when you apply for a loan or credit. If you have never checked your credit rating, consider doing it at least once a year. You will not be able to have any comments deleted but may find that there have been some mistakes that you can have rectified.” 

“In a complex world, it can be a challenge keeping up to date with available financial services and products. We believe, however, that making sure that you are financially empowered begins with educating yourself with the knowledge that can help you make better decisions about finances. Knowing what can impact your credit rating and how to ensure that you are prepared for the future is a case in point.” 

Agreeing with Manyike, Salem Nyati, Founder of Debt Emancipation Movement, says that credit ratings are arrived at through a combination of three concepts. “A good credit report is based on the expectations, your financial behaviour, and impressions that credit providers have of you as a borrower. These are applied to your financial dealings and can impact your rating.” 

Keeping your rating up and your record clean can be helped by:   

  • Avoiding applying for credit too often. 

If you apply for credit or loans frequently, this indicates that you have financial challenges. The more often you apply for credit over 12 months, the more often your name is listed. ”This leaves electronic footprints in your credit report and leaves an impression that you are desperate for money,” says Nyati. 

  • Managing your credit card. 

If the balance on your credit card is kept well below your borrowing limit (preferably 35%), your score will benefit. “Maxing your card out gives the impression that you are in financial trouble,” says Nyati.“  

  • Avoiding high balances on revolving credit accounts. 

Even if you meet your financial obligations, having a high balance on revolving credit accounts can lead to a high credit use rate that can hurt your score. Keeping a low balance in relation to the available credit ratings will help your score. 

  • Catching up on past-due accounts. 

While a late payment can remain on your credit report for years, getting all your accounts paid up to date can help your score. Additionally, it stops further overdue payments from being added to your credit history. 

“By taking steps to clean up your credit rating, you place yourself in the best possible position for securing credit and loans as you will be seen as a dependable potential borrower. In a world where well-managed credit is a valuable personal financial planning tool, your reputation as a trustworthy payer is one of the best assets you can have,” says Nyati. 

“Even when things do go wrong, and you enter debt review, a clear credit rating is not unreachable,” adds Manyike. 

 “Pay your dues, clear your name, and you can then apply for a clearance certificate. This clears your old credit record and enables lenders to begin extending you credit and loans.”  

“It can be a lengthy process to clear your name, but it is a job worth tackling. Your financial future will benefit from it.” 

 

Quick Polls

QUESTION

There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?

ANSWER

Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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