Article written by Ans Gerber (Head of Data Insights at Experian Africa)
If you have taken out a loan or a store account, or have a credit card or a home loan, you have a credit record. Having a good credit record could make things easier when buying a car, financing your dream home or getting a loan.
A good credit report is summarised into a credit score, which indicates your risk of failing to pay back a loan. If you are a risk, your score will be low. Conversely, if you are less of a risk, your good score will be high, and could help you receive loans quickly and at a favourable interest rate. This is why it’s a good idea to understand your credit report, which is freely available to you from credit bureaus, especially if you are planning to apply for a loan in the foreseeable future.
The Credit Bureau Association found that only 188 000 of 25 million credit-active South Africans access their reports every year. But there is no reason lenders and credit bureaus should know more about your credit record than you do – getting and checking your credit report is a much less daunting task than it first seems. But first, what is a credit bureau?
What is a credit bureau?
Credit bureaus store credit-related information about you and draw up reports, which include a score that indicates whether you are a high risk or not. They provide this to lenders, who want to understand if you are reliable with repayments and can afford the new credit that you are applying for. Bureaus update these records when your instalment repayment information is received from lenders and other financial institutions and these updates typically happen every month.
In South Africa, the National Credit Act (NCA) stipulates that no credit provider may give you credit if this leads to over-indebtedness. If you can’t pay, then they can’t grant the credit. Therefore, lenders need to check your report to make sure they are in compliance with the NCA. They also need to do an affordability check.
By law, credit bureaus are registered with the National Credit Regulator (NCR), which says that your credit report can be used:
- To decide if you can afford credit.
- By credit providers to trace consumers in relation to a credit agreement.
- To assess an insurance application.
- To obtain consumer information to distribute unclaimed funds.
- For setting limits relating to the provision of services.
- For the investigation, detection and prevention of fraud, corruption or theft.
- To consider you for employment in a position that requires honesty and the handling of cash or finances.
- To verify qualification and employment.
- The assessment of a business’ debtors book.
- For the development of credit scoring.
- For an application for debt review.
For more information on the prescribed purposes, refer to Section 18(4) of the National Credit Act.
In South Africa, all credit bureaus must provide one free report a year. But Experian South Africa goes further than this. Experian is the world’s leading global information services company, operating in 30 countries. In South Africa, Experian provides unlimited free personal credit reports in an easy-to-read format. This means that you can access your free credit report as often as you prefer.
What type of information is in your credit report?
Credit reports can seem detailed at first glance, but if you break it down, these are the broad categories of information collected:
- Identification information: This section includes information such as your name, ID number, employment information, property owned, addresses and contact details. Companies can use this to verify your identity.
- Positive information includes information about accounts you have and any positive payment history and status.
- Negative information includes default notices, court judgments against you, administration orders, debt enforcement notices, debt review notices and late payments.
- Note: The payment profile section includes both negative and positive information, with up to five years’ of data kept on record. Late payment or non-payment reduces your score whilst timely payments can improve it.
Credit providers have their own ways of deciding if they will lend you money – your bureau credit score is only used as a guide when you apply for credit.
Free reports and dispute process
If information in your credit report is incorrect, you should log a dispute with all the credit bureaus for free. This process can take up to 20 business days. During this time, the credit bureau will contact you for more details and supporting documents, so keep that handy. They will also investigate any incorrectly indicated disputes with the lenders or financial services providers.