In this week’s blog, Consumer Debt Support (CDS) we discuss credit ratings and reports. How good or bad report will affect a consumer in the long run. Do you really know how healthy your credit rating is? Did you know that approximately 100 000 consumers actually check their credit report in a year cycle?

Let us take a walk together and explore a little more on this topic that affects every consumer and worker over the age of 18. Debt is a fact of life that we all have to face one or other time in a life cycle. But not knowing your creditworthiness can hurt you in a real way when you need financial help or need a good credit scoring for business ventures, or when in much need of a student loan, new renovations to your family home, or needing to buy a good second-hand car. Having a good sound credit record, or a bad credit record is yours for your entire life.

In most of our lives, debt has been unavoidable and a major part of our living and the means to buy things, having a family home and car, cover unforeseen medical debt when serious illness is diagnosed. Most of us can relate to a personal loan or a credit card facility linked to a cheque account. For most of us having these credit agreements is an important part of our living, and finding out someday in the near future that you need to apply for one of these accounts and you do not qualify, can be devastating to anyone.

Disaster can strike at any time. It does happen where workers find they have been retrenched, or the company where they were employed just did not open their doors again, or due to illness could no longer work. What happens when there is debt that must be paid every month? Most consumers live on a tight budget and have not built a savings net. One can just imagine the crisis in a time of unemployment when no proper planning is put into place for the unforeseen. In most of these cases debt can’t be paid due to cash problems, with grave consequences to the credit record.

Credit report:
Consumers should know that when they can’t get a score by credit bureaus because they have never entered the credit market and there is no credit scoring. The consumer will struggle to obtain credit like buying a car or applying for a credit card.
The opposite will happen when the credit bureaus score individuals on their payment history or keep record of their indebtedness, or keep negative information for five years or longer. Creditors list all inquiries on a consumer’s personal information listed with the various credit bureaus. This information will reflect on the credit report for other creditors to see how many inquiries was made and how many debt declines were listed.  All this activity can affect a credit score outcome.

We must remember credit buraus and creditors/lenders do not know their clients. A consumer works for years to maintain a good credit record by making payment on time. They never pay late or skip payments at any given month. A good credit record is earned and a good credit score can be expected.

When clients apply for new credit they do not have a good payment record, their creditors listed negative payments information for example; skipped and payments made late. This behavior will have a negative credit score and place the client in a high-risk category.

Maintaining a good payment profile:
Consumers can’t ignore the past of their debt payment history, but can change the way forward by ensuring a good payment history is kept. It can be devastating when a much-needed credit application in the case of an emergency is declined — not knowing why it was declined, is not good neither. Consumer may not be withheld the right to know why a loan application etc. was declined.

By taking action on the way you manage your debt can keep the red flags away from your credit report:
We live in a difficult economic climate where consumers are faced with job insecurity and price increases on household living cost that can affect anyone in a negative way and be an attributing factor why it is in many cases the reasons for defaulting in paying debt on time. Consumers have a responsibility to ensure the debt is affordable before they accept new credit. Be aware that micro loans can damage a good credit record. It is the first signs that a credit score is not good for a bank to give credit.
One of the most problematic areas when consumers are retrenched, dealing with serious illness, temporary disability or job loss is the lack of planning for the unknown when debt payments can’t be made in time of crisis. It is always a good idea to shop around for a credit life cover, disability temporary and permanent cover, retrenchment cover as well as an income protector cover for when you are not able to work due to unforeseen circumstances.

When accepting a loan or other credit agreement, it is important to ask questions regarding the third party insurance that is part of the loan and payment plan.
Here is a few key questions to ask when you have insurance on any new or existing credit agreement:
1. Who is the company?
2. What is my policy number?
3. What will I be covered for when I can’t work?
4. How long will it take to process a claim?
5. For how long can I receive a payment when ill, disabled or retrenched?

The new law on prescribed debt:
With the new law of prescription, consumers must familiarise themselves with this new law. After three years, if you haven’t acknowledged or made a payment to a debt, it has prescribed and those creditors are not allowed to submit any negative information on your credit report. You have the right to raise these issues with the creditor, the credit bureau and even the ombudsman. You may also refer the matter to the National Credit Regulator (NCR) to assist you with an unlawful listing on a credit report.

Pay your debt on time:
Did you know that almost all the creditors’ books close on the 7th of each month? It is vital to make your payment on time and ensure payment is made as per the agreement made with the creditor. For example, if your contract states your payment is due on the 1st of the calendar month, then make sure your payment is made on that date.
If you pay late, the information will be recorded on your credit record which will be made available in your credit report when creditors enquire about your behaviour towards your creditors and in this case your credit score is very important. So, when you pay late, it will most definitely affect your credit report outcome.

After you paid off your debt:
Once all the debt has been paid up, the information must be updated by the creditors. Remember, the information of how you managed your accounts for up to 5 years, can be used against you, so there is no quick fix of your credit report once you settled all your debts, it can take between three to six months for your credit report to look better. Creditors can go back 60 months and see how you managed your credit profile. In most cases they use the last 24 months information to gather a good reflection of your report.

When your debt has been paid up through the debt review process, the creditors may not hold the debt review against you after exiting debt review. The credit bureaus have to clear your credit record and remove all negative information. The NCR investigate these complaints and see them in a very serious light.
What now when you have never entered the credit market before?:
The TransUnion website share some great tips and advice on this topic. The creditors/lenders will review a new debt application and look at the following information:
Identification. Account history, public records and enquiries. When a credit history has not been established, the applicant of new credit might need someone to sign surety and be added as an authorised account user on a new account.
For someone entering the credit industry as a new ling, it is a good idea to save up and have collateral that will ensure you can put cash upfront as surety.

Once the credit history has been established, it is very important to maintain a good record.

Creditors look at the following when accessing your credit report for a score:
1. You need existing debt to take on more credit.
2. Who is your creditors?
3. How do you manage your accounts?
4. What is your payment history like?
5. Can the creditor trust you with a new loan or credit card so that you can afford the payment and keep the payment agreement every month?

Before you apply for the next loan, make sure you know your credit status and that you have a good credit score rating. It is not good for your credit report to be declined.

In Conclusion:
Take the time once a year after your birthday and get your FREE credit report. So, few consumers embark on this FREE right and have no idea what is their credit status or credit score. Don’t wait for an urgent much needed debt application to be declined due to a bad credit report. Don’t wait to find out you have been a victim to some scam and identity theft and you have bad listings of debt you did not apply for. If you have not done a credit check in the past five years, make it a mission to do it today or during this week and know your status.


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