When it comes to applying for credit, there are many myths and misconceptions that range from your credit report, your credit score, or even whether an employer can choose to turn down your job application based on your credit history.
Here, we’ll unpack some popular credit myths and offer insight into how you can improve your credit score and take control of your finances.
Credit reports are expensive to check
Your credit report is a history of your applications, use, and repayment of credit – this can include not only personal loans, but also your credit card repayments, a bond application, or even vehicle or asset finance. Your credit report is what lenders will use to check your credit standing before offering you a decision on a loan application, and your credit score is a representation of your overall borrowing habits.
Given that your credit report is an important document to review, you might expect that it is costly to get access to – however, under the National Credit Act, all South African citizens are able to check their credit score once a year, for free. By contacting a credit bureau such as TransUnion, CompuScan, or Experian, you can request one free viewing of your credit report each year – after which, you’ll need to pay to view your credit report again.
You can also choose to view your credit score on ClearScore, where each month you can access your latest score for free.
It’s a great idea to check your credit report regularly to ensure it accurately represents your credit history and repayments, and that no fraudulent loans or applications have been made on your behalf. When checking your report, it’s also important to remember that different Credit Bureaus have different score structures – for example, one credit bureau might give you a score out of a total of 700, while others might give you a score out of a total of 1000.
A poor credit record means you can never borrow again
Your credit report is a running record of your credit history, and shows your latest credit activity – such as loan applications and repayments. This record usually contains the last 5 years’ worth of activity, and different lenders may check different time periods on your report when you apply for a loan.
If you have a poor credit score – which can either be due to the fact that you might have never applied for a loan or form of credit before, or have faced difficulty to make repayments on time in the past – this can affect whether a lender will be willing to lend you money. Usually, if you do not have a long credit history on your report, lenders will instead prefer to look at other information (such as your income or expenses) to make a decision.
If you have a poor credit record, this does not mean that you can never borrow money again. Your credit score will improve and will re-adjust if you improve your credit activity and make regular repayments on any debt you may have, and in time you may find that lenders will be willing to offer you credit if your score improves.
Under the National Credit Act, no lender may offer credit to someone who has been blacklisted as a result of fraud or failing to repay their debt or to someone who is under debt review. However, these judgements on your credit record will last for a maximum of 7 years – meaning that if your borrowing behaviour improves and the judgement expires, you will be able to borrow money in the future as long as you repay your debt timeously.
Making minimum repayments will reflect poorly on my credit profile
When you choose to borrow money through a credit card, you have the option to make minimum repayments or full repayments. When you borrow a sum of money, you can either choose to repay the full amount within 55 days to benefit from no interest charges (this can depend on your bank and your account) or you can choose to make a minimum monthly payment to repay your debt over a longer period.
You might sometimes be told that making minimum repayments can harm your credit profile and your credit score – however, if you regularly make minimum repayments on your credit card and don’t take out an overdraft, this should not negatively affect your credit score as long as you don’t fall behind on your repayments.
Making larger repayments and paying off debt earlier can actually improve your credit score over time, as this shows that you are able to repay an amount that you have borrowed before your promised repayment is due.
Remember that it is always better to make a minimum repayment than to make no repayment at all – should you not take steps to repay your debt, you’re likely to be charged additional fees and interest for late repayments.
When you borrow from Wonga, we actively encourage you to repay earlier – you save on interest and fees by doing so!
A potential employer can turn you down if you have a poor credit record
When you apply for a job, a potential employer has the legal right to check your credit record to ensure that there are no legal judgements against your name. You might also believe that your employer has the right to turn down your application if you have a poor credit record.
The purpose of this credit check is intended to ensure that you do not have any legal judgements, blacklisting, or fraud indicated on your credit report. It is not intended to check your overall credit score nor your repayment history.
A potential employer has the right to check your credit report, but must legally ask your permission to do so first. Unless your employer works in the financial industry or is subject to laws and regulations surrounding financial practice and trust, your employer may not discriminate against your job application if you do not have any judgements against your name.
If you have a poor credit record due to repaying a loan late, or struggling to make repayments on time, your employer cannot use this information against you.
It is always important to review your credit report regularly, and ensure that your personal information and history matches what is represented in your report.
