Anton Smit
Windhoek-Banks generally evaluate credit applications on three basic principles, namely integrity, repayment ability and security. In this article I will focus on one of these basic principles, namely integrity. An important aspect of integrity is your credit history.
Your credit “history” is a record on how you pay bills or repay money you have borrowed. It includes your record and timeliness of payments of your bank accounts, loans, credit card accounts, store accounts and other lending. A good credit “history” helps you realise your dreams:
Buying a home, car, leasing an apartment, getting a job – all these events may require a credit check. Credit grantors, such as banks, make use of a credit report issued by credit bureaus to determine your creditworthiness by assessing both past and current credit behaviour.
How to establish a credit “history”:
• Begin by opening a savings and cheque account in your name. Over time, your deposits, withdrawals and transfers will demonstrate that you can handle money responsibly.
• Apply for a loan or finance of an asset, but be aware of the cost, since payment of interest is applicable.
• Open a clothing account. Start with a low amount and pay your account regularly.
• Apply for an open, 30 day credit account at shops where you frequently buy. For responsible users, these credit accounts are a useful tool. All charges are due in full every month, and no interest is charged.
• Find a friend or family member to be a co-signer/surety. A co-signer/ surety may help you qualify for credit, but remember that the friend or family member will be responsible if you default on your agreement to pay.
Factors that can jeopardise your credit history:
• Late payments are noted on your credit report, even if you pay it later. You must pay your instalments as per the initial arrangement.
• Using more credit than your arranged facility. This action has a negative effect and incurs unnecessary costs like penalty fees.
• Cheques issued with insufficient funds in your account. In addition to incurring unnecessary excess fees, your cheques may be returned which will negatively influence your credit record.
• Not paying your loan or asset finance. An unpaid instalment reflects negatively on your credit record and places your cash flow under pressure if you have to meet more than one payment the next month.
• Personal debt is too high. Banks and other lenders take into account your total debt when considering whether you qualify for additional commitments.
• If you are placed under administration, declared bankrupt or a summons is issued against you, it will have a serious effect on your credit “history”. If this happens, it will be very difficult to restore your creditability to obtain new credit.
Advantages of a good credit “history”:
• Makes it easier to obtain credit.
• Favourable terms and rates can be negotiated.
• Good credit is an asset. It is a valuable tool for building wealth for you and your family in the long term.
How to improve a poor credit “history”:
• Recognise your problem, stay in contact and negotiate new arrangements like extension or new payment schedules or reach a compromise with your credit provider.
• Immediately stop taking up more credit. Ensure that you can afford your monthly repayments.
• Try to catch up on arrear instalments and keep to your arrangements.
Whilst banks need to be responsible in the extension of credit, you can be a responsible borrower and thereby limit unnecessary debt.
*Anton Smit is executive officer for credit at Bank Windhoek.