A personal credit check is a review of your credit history – the record of how you’ve managed credit and debt in the past. Lenders, landlords, and even potential employers might request this check to assess your financial responsibility. Understanding personal credit checks and what they entail in South Africa can be crucial to your financial health.
Understanding Your Credit Score
Your credit score, a three-digit number derived from the information in your credit report, measures your credit risk or the likelihood of you defaulting on credit repayments. It’s mainly based on your credit history, including repayment behaviour, amount of debt, length of credit history, and types of credit you have. This score significantly influences whether you are approved for credit and the terms you are offered.
The Anatomy of a Credit Report
A credit report is a comprehensive document that contains all the vital details about your borrowing history and repayment behaviour. The information within a credit report is the basis for your credit score. Here are the key components that make up your credit report:
Personal Information
This includes your full name, identification number, current and previous addresses, date of birth, and possibly employment details. This information is used to identify you and isn’t used in credit scoring.
Credit Accounts
Your credit report contains a list of credit accounts you have or have had, including credit cards, mortgages, and loans. For each account, the report includes information such as the date the credit account was opened, the type of credit, your credit limit or loan amount, account balance, and your payment history.
Credit Inquiries
When you apply for credit, the potential lender will check your credit report, which leaves a ‘hard inquiry’ on your report. These inquiries slightly lower your credit score for a short time and will remain on your credit report for two years. In contrast, ‘soft inquiries’ do not affect your credit score and happen when you check your own credit or when a lender sends you a preapproval offer.
Public Records
Certain legal events that potentially impact your ability to repay debts may appear in your credit report. This might include court judgments, bankruptcies, or tax liens. Credit bureaus include such public record information where applicable.
Collections
If you’ve had an account that has been sold to a collections agency due to non-payment, this will also appear on your credit report.
Each of these elements plays a vital role in giving potential lenders a holistic view of your credit history and financial behaviours. It’s therefore important to ensure the accuracy of all these details, regularly checking and promptly disputing any errors with the relevant credit bureau.
Moreover, understanding what’s in your credit report helps you see the factors that may affect your credit score, enabling you to take steps to improve it if necessary. This will consequently affect your ability to secure credit, the interest rates you are offered, and other terms of your credit agreements.
How to Perform a Personal Credit Check
Regularly checking your credit report is an essential part of managing your finances. It lets you understand your financial health, monitor changes, and correct inaccuracies. Here’s how you can perform a personal credit check in South Africa:
Obtain Your Credit Report from a Credit Bureau
South Africa has four main credit bureaus – TransUnion, Experian, and XDS. Each of these bureaus is required by law (under the National Credit Act) to provide consumers with one free credit report per year. You can request these reports online, by phone, or by mail. If you need to check your credit more than once a year, there might be a small fee.
Use a Credit Monitoring Service
Some companies offer credit monitoring services, often for a monthly fee. These services can provide regular updates, sometimes even real-time alerts, for any significant changes in your credit report. They can be particularly useful for guarding against identity theft.
Consult with a Financial Advisor
Financial advisors can also assist in obtaining and understanding your credit report. This might be a good option if you’re planning a significant financial decision and need professional advice.
No matter which option you choose, review all the details in your report. Look for any inaccurate or outdated information, including incorrect credit limits, payment history, and even your personal information.
If you find any inaccuracies, you can dispute them with the credit bureau that issued the report. The bureau is legally required to investigate the dispute, usually within 30 days.
The Impact of Hard and Soft Inquiries
Hard inquiries occur when a potential lender reviews your credit because of a loan application or credit card. These can slightly lower your credit score for a short time. On the other hand, soft inquiries do not affect your credit score. These occur when you check your own credit or when a promotional credit offer is made.
Improving Your Credit Score
Improving your credit score is a process. Make sure to pay your bills on time, reduce your outstanding debt, don’t close unused credit cards, and only apply for new credit when necessary. These actions, over time, can have a positive impact on your credit score.
Dealing with Negative Information on Your Credit Report
Negative information, such as late payments, can remain on your credit report for several years. If you find an error in your credit report, you can dispute it with the credit bureau, which will investigate the issue.
Credit Checks and Privacy Laws in South Africa
The National Credit Act protects South African consumers during credit checks. This legislation stipulates how your credit information can be used, who can access it, and ensures your right to a free credit report annually.
Frequently Asked Questions (FAQ)
How do I do a credit check myself?
To perform a credit check on yourself, you can request a free annual credit report from each of the four main credit bureaus in South Africa – TransUnion, Experian, Compuscan, and XDS. These reports can be requested online, by phone, or by mail. If you need more frequent checks, consider subscribing to a credit monitoring service.
How do I check if I am blacklisted?
“Blacklisted” is a term often used to refer to individuals with poor credit records. The credit bureaus don’t use this term. If you want to check your credit standing, request a credit report. It will show whether you have any defaults, judgments, or arrears on your account, which might make lenders see you as a high-risk borrower.
What is a good credit score?
In South Africa, credit scores range from 330 to 830. A score of 600 and above is considered good, while a score of 750 and above is viewed as excellent. Higher scores indicate lower credit risk, which could make you eligible for better interest rates and terms on credit and loans.
Can my bank tell me my credit score?
Some banks do provide credit scores to their customers. However, they only provide this information if you have a specific type of account or service with them. It’s best to contact your bank directly and ask if they provide this service.
Is it okay to check your credit score?
Absolutely. Checking your own credit score is not only okay, but it’s also an essential part of managing your financial health. Regularly reviewing your credit report can help you spot errors, uncover fraudulent activity, and understand your creditworthiness. Remember, when you check your own credit score, it’s considered a “soft inquiry” and won’t impact your score.
Conclusion
Performing regular personal credit checks is essential for maintaining good credit health. By understanding your credit score and report, you can take control of your financial health and make informed decisions.
