UNDERSTANDING YOUR CREDIT SCORE

Photo Caption:  Martha Murorua – Executive: Consumer Banking

Access to credit can be a cornerstone to personal growth and many consumers can relate to the excitement and relief of qualifying for credit to buy a house, a car or to cover education costs, funeral expenses and medical emergencies. 

Unfortunately, statistics also indicate that many consumers also struggle to manage credit.

Martha Murorua, Executive Consumer Banking at FNB says while many factors are considered to determine the outcome of a credit application, one of the key factors that credit providers consider is the ability to repay the loan based on individual’s financial behaviour. 

The easiest way to understand a credit rating is to view it as a report of financial transactions which include patterns of payment of credit, missed repayments, debt restructuring, or actions taken by a credit provider or debt collection agency to recover unpaid amounts. The individual’s financial behaviour added with sensitivity to changes in economic cycle, adverse credit information and disposable income are all factors which translate into a customer’s credit score. 

“All credit providers are obligated by law to share their customer data with registered bureaus. When applying for credit, a credit provider will ask your permission to access your credit profile to better assess your application. Credit providers will also use such information to determine the credit score and associated risk that they are willing to take, which might determine the interest you will potentially pay on your loan, within the maximum allowable limits of the Usury Act”, she says. 

Murorua gives useful tips on how consumers can maintain their credit worthiness and a good credit rating:

• Consider your application and enquiry activity – Multiple and frequent applications for credit in a short period of time could potentially indicate that a customer is going through financial strain and in desperate need of credit. 
• Know your credit bureau profile – Customers can request their credit report from the credit bureaus. Customers should ensure all information on their profile reflects an accurate view of their credit commitments and repayment behaviour.
• Be honest about your financial position – While financial institutions have to perform affordability assessments for every credit application, consumers also have a duty to provide truthful information about their ability to afford credit. It’s important to understand your monthly income and expenditure. Will you be able to service your debt if you have a sudden decrease in income or increase in expenses? 
• Honour your monthly commitments – In the credit application process, past behaviour is very important. Avoid going into arrears by falling behind on payments.  Not making sufficient money available for debit orders can lead to additional charges and adverse credit record which will impact your ability to qualify for future credit. Ensure you repay all your commitments on time, every month.

If you are having trouble meeting your current obligations, contact your credit provider and try to work out a repayment plan. Stick to the plan diligently and your score will improve over time. 

• Mange the overall amount of debt you have – Use less of the overall credit you have. On a credit card or revolving facility for example, using a low proportion (say 35%) rather than 100% of the facility indicates ability to manage the credit and indicates financial healthiness.  
• Understand the different types of credit – A Credit Card serves as a transactional product and provides you with different repayment options for your hire purchases. Temporary or permanent overdrafts can be reduced over a period of time. Revolving credit is repayable in fixed monthly instalments with an option to top up. Student loans, FNB temporary ATM loans and personal loans are very different facilities and the interest you pay on each can be vastly different. 

Use your banking relationship to understand the use and how best to manage each facility. 

“Consumers should utilise every opportunity to better manage their finances. At FNB, we empower our customers with tools such as our banking App to help them manage their money through a secure digital platform. We’ve also invested heavily to digitise access to credit while maintaining stringent processes to safeguard the financial wellness of customers,” concludes Murorua.