SIMON BROWN: Why it matters to manage your credit score

When you apply for any form of credit, insurance and sometimes even a job, one of the first things that will be checked is your credit score. This is a record of how well you have handled credit repayments. Do you pay on time or have you recently defaulted, maybe paid late or even short?

In SA, credit providers have a score of between 300 (poor) to 850 (excellent), with anything above 640 regarded as decent. The higher your score, the more likely you are to be successful in your credit application and potentially even getting a better rate on the loan.

So managing your credit score really matters, and you need to keep an eye on it to ensure it’s accurate. If there are errors, you have the right to contest them; you can also check to see who has done a credit check on you recently. 

There are a number of credit agencies which manage credit scores; they compile all the data and calculate your score, which they then supply to lenders. The law entitles you to a free credit report once a year, but these days many financial institutions, such as banks, offer the service for free.

If you’re planning a big purchase such as a home or vehicle that will require credit, it is worth checking your score some time beforehand so that if it’s low, you can work on improving it. Knowing your credit score (assuming it is good) will also give you leverage when applying for the loan.

Improving your score is as simple as ensuring you always pay on time and don’t have any judgments against your name. Bear in mind that every credit application is also recorded, which may raise red flags.

The reverse problem is also true: people who don’t have any debt don’t have especially high credit scores, as there is no repayment history. Yet here too there are ways to improve your score: paying your monthly insurance bill on time via a debit order helps, as does the regular payment of your cellphone contract. 

As for errors, you need to contact the agency which has the error against your name and lodge a dispute. An error is not that you have now paid off the debt — that record will remain for three years. But maybe you were never late or never even took out a particular loan. In that case, definitely contest the information.