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How credit checks work in South Africa

Posted 24.05.2021
How credit checks work in South Africa

The best way to understand how credit checks work is to understand how credit reports and credit scores work first. To begin with, your credit report or credit file contains information about your financial behaviour, especially when it comes to borrowing and spending. For instance, it shows:

  • The loans that are in your name and how much you owe
  • Recent loan applications you have made
  • Whether you pay your bills on time
  • Whether you have court judgements against you or have been bankrupt

This information, plus other details, such as the type of loans you have, is then used to calculate your credit score. According to TransUnion South Africa, credit scores usually range from 0 to 999. A bad credit score is anything below 486, while an excellent credit score is anything above 767. 

What is a credit check?

Since your credit score is calculated using the information in your credit report, it usually changes as this information gets updated. Now, getting back to the main topic, a credit check, also known as an enquiry, is what allows you or other people to access the information contained in your credit report. In other words, a credit check is when someone views your credit report to find out your borrowing history.

Why would someone look at your credit report?

Let’s take a look at the type of people or organizations likely to view your credit report and why they may be interested:

  • Lenders: When you apply for a loan, lenders want to know your risk level before deciding whether to approve you. They mainly use your payment history and how many loans you have to make this decision.
  • Employees: Sometimes, employees also check your credit report before offering you a job. In this case, they want to know if you can manage finances and if your borrowing history has the potential to affect your work performance.
  • Landlords: For most landlords, rent must come on time every month, so they will do a credit check to see how trustworthy you are.

Other types of companies such as debt collectors and companies offering mobile phone contracts can also check out your credit report. Credit checks are not only used to check your trustworthiness or creditworthiness. They are also a way to confirm your identity. 

However, not anyone can stroll up and peek at your credit report. It’s either they get permission from you first, or they must have a legitimate purpose for checking your report. The National Credit Act (NCA) is there to protect your privacy in this regard, and this is enforced by the National Credit Regulator (NCR).

Can I check my credit report, and when should I do it?

Not only can you check your credit report, but you’re encouraged to do so regularly, especially in the following situations:

  • Before a loan application. This allows you to fix errors, so you can improve your credit score, and get a lower interest rate. Additionally, you won’t waste your time applying for loans you don’t qualify for if you know your score. 
  • When looking for a new job or home. A clean credit history helps you present your best face forward when applying for a new job or place.
  • If you’re planning to refinance. Refinancing a loan is only a smart move if you’re getting a low interest rate and better terms. Checking your report allows you to see what you can improve to score a better deal.
  • If you suspect fraudulent activity. Checking your credit report also helps you know if someone is carrying out financial activities in your name without your permission.
  • When it’s been a long time. Because the information in your report changes constantly, it’s a good idea to keep updated. Always take advantage of your one free copy per year and don’t wait until something goes wrong to start checking your file.

Where can I check my credit report in South Africa?

You may be able to check your credit report or credit score from the below companies. Keep in mind that you only get one free copy of your report per year. If you need another copy within the same period, you’ll have to pay a small fee.

Will a credit check or enquiry affect my credit score?

Yes, and no. That’s because there are two types of enquiries. A hard credit check affects your credit score since it’s tied to a loan application. This is the reason why you may have heard not to apply for too many loans in a short period of time. Having too many hard enquiries on your credit report makes you look riskier to lenders.

On the other hand, a soft credit check happens when someone, such as an employer, looks at your credit report. It won’t affect your score and is not visible to companies or other business entities that look at your file.

How do I keep my credit report in good shape?

Now that you know how credit checks work, it’s in your best interests to make your credit report look good every time someone looks at it. That means:

  • Paying your bills on time and avoiding missed payments
  • Settling outstanding debts
  • Reducing the amount of debt you owe
  • Borrowing what you can afford
  • Regularly checking the accuracy of your credit report

Over time, these actions will improve your credit score and leave you in good standing whenever someone carries out a credit check on you.