While there are many myths and conceptions around credit, what often remains unclear is precisely what can affect your credit score and feature in your credit report.
Your credit report is a record of your borrowing history. When you apply for credit or enter into other agreements (such as renting a property) a lender or party might choose to review your credit report to ensure that you can manage to repay your debts, and that you do not have any judgements in your name.
Given that your credit report can contain adverse listings such as non-payment in your name or whether you have previously had a judgement lodged on an account, many people believe that a variety of activities can actually impact your report and credit score when, in fact, they do not.
Remember, while keeping a good credit score is a priority, it is also important to timeously settle fees, fines, and expenses when they occur.
Checking your credit score
Every South African, by law, has the right to check their credit score once a year, for free. Some services such as Clearscore, however, can even allow you to view your credit score whenever you prefer and will provide helpful suggestions to improve your score where the opportunity arises.
It’s important to note, however, that checking your credit score will not actually affect your report in any way, and the claim that doing so will lower your score periodically is false.
However, your credit score will be affected when you apply to borrow money or enter into a finance agreement with a regulated lender to purchase an asset. At the point where a lender requests to view your credit score, an ‘enquiry’ will be listed on your report.
This is a sign that you have recently requested to borrow money and is a signal to other lenders that you may be looking for finance to settle other debts, which they should take into account when choosing to lend to you.
Your net worth
Surprisingly, your net worth and salary will not have any direct effect on your credit score and is not even referenced in your credit report itself. This means that, ultimately, your net worth and assets do not define your report and this is not a significant differentiator over one credit applicant to the next.
However, while your income will not affect your credit report, it can affect your application with lenders in the sense that a credible lender will verify your debt-to-income ratio (a comparison of your outstanding debt repayments to your salary or income) to ensure that you will have enough money to service new debt.
Settling utilities
When you rent or own a property, you will be required to settle different utilities and accounts – depending on where you rent and in which municipality, this can include charges for items such as electricity, refuse, water, or other surcharges.
Settling your accounts does not impact your credit score; in the event you fall behind on your payments, you will enter into arrears with your municipality, sectional title, or another provider. The only time your credit score would be affected is in the event you have a summons process is initiated against you.
Traffic fines
Depending on your municipality or provincial government, traffic fines are issued for offenses that can include speeding, driving under the influence, or otherwise breaking the law. Traffic fines must by law be settled and failing to settle a traffic fine might result in a municipality or provincial government issuing a summons to a court hearing. In the event that isn’t attended, an arrest warrant may be issued to the party at fault.
Receiving a traffic fine does not affect your credit score, and neither will settling it. However, if a summons process is initiated and a judgement made against your name, this could affect your score negatively.
SABC TV Licenses
While there is much confusion and misrepresentation around the annual SABC Television License that television owners must settle, it is important to note that the yearly cost is defined as a tax and not a fee – meaning that the SABC is not a registered credit provider and cannot legally blacklist you in the event that you do not settle your TV license.
However, a TV license is a regulated tax in South Africa, and by law must be settled. In the event a TV license is not settled, the SABC can, as other parties would, hand over your outstanding debt to be collected at which point your credit score can be impacted.
Download our Financial Readiness Pack
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If you’d like to set up a practical strategy that can help you settle your expenses, manage your debt, and work through improving your credit score, you can download our Financial Readiness Pack here:
