Business & Economy

Thursday, 16 April 2009 15:24

How Credit Worthy are You?

{pp}Since 2001, we’ve seen a huge increase in the desire for “bad” credit. This is credit that feeds consumerism and the need for immediate gratification. Methods used in curbing this indulgence have had an adverse effect on the availability of “good” credit (credit used to build assets). Those wanting to take advantage of the current market opportunities, are finding it difficult to qualify for credit, as credit providers are being selective as to how they part with their limited funds available. So how do you ensure that you are first in line when it comes to credit extension?

1) Reduce Unnecessary Facilities

All credit limits granted, whether used or not, are taken into account when evaluating your affordability.  Hence if you have an overdraft facility that you are not utilizing or a credit card limit of R60 000, where you only need R10 000, reduce this accordingly.

2)  Have Some Form of Credit Facility

It is very difficult for banks to assess your credit management if you don’t already have an existing credit facility.   Having no credit facilities will reduce your credit scoring.

3)  Pay Your Accounts on Time, Every Time

If your account is due on the 30th of the month, but you are in the habit of only paying 10 days later, you will be listed as a bad payer.  If one month you pay a double instalment and the next month you don’t pay your account, you will be listed.  Always pay an instalment on your account, on time, to avoid being listed as a bad payer and possibly even having your credit scoring reduced.

4)  Avoid Bounced Cheques / Debit Orders

If your cheques or debit orders are returned due to insufficient funds, your credit scoring at that particular bank will be adversely affected, even if you sort out the problem the very next day. 

When applying for credit at another financial institution, they will request 3 to 6 months bank statements and possibly even a “code” from your banker.  If at the time your unpaid items are still evident, they bank may refuse to grant you credit.

5)  Check your Credit Record

Contact the various credit bureaus and make sure that you have not been inadvertently listed.  You are entitled to a free report once a year.  Immediately dispute any adverse record you don’t agree with or sort out any outstanding listing.  This information is available to all banks and they will not grant any form of credit extension if you currently have unresolved debt issues.

  • TransUnion ITC
    Call Centre:  0861 482 482
  • Experian S.A.
    Call Centre:  0861 105 665
  • Xpert Decisions Systems (XDS)
    Telephone:  011 645 9100
  • Compuscan Information Technologies
    Call Centre:  0861 514 131
  • Credit Information Ombuds
    Call Centre:  0861OMBUDS (0861 662 837)

6)  Be Proactive

If you suspect that you will be entering difficult times in future, make plans to release equity on your assets, obtain additional finance and reduce existing expenditure.  Make hay while the sun shines, because once you are in trouble, it will be very difficult to convince anybody that you are worthy of credit.

7)  Have Updated Financials

I’m always very surprised at how many self-employed entrepreneurs don’t have updated financial statements and management accounts.  How do you manage your business?  Without management accounts, you are sending out a clear message that you are not on top of the financial aspects of your business.  How do you propose convincing anybody that your business can continue sustaining itself and provide you with future income?  Financial statements and management accounts are the foundation for successful business management.  They reflect the history of your business, your income and expenditure and the flow of funds, and without them it is almost impossible to assess your credit worthiness.

8)  Avoid Trading in Cash

If you run a cash business, deposit your cash into your bank account.  Even if you have accurate financials, but the bank is unable to verify your turnover through your bank account, they may refuse to grant you credit.  One can always argue that you are avoiding depositing cash to reduce the bank charges on cash deposits, but then the bank will require your latest tax assessment.

One is always eager to blame circumstances and the current market conditions for the position we find ourselves in.  Without sounding insensitive, 80% of all declines are due to applicants not taking responsibility for their credit worthiness.  In the past, credit was easily available, unfortunately to the detriment of a healthy fiscal environment.  Credit is still available, but it is up to you to prove credibility.

Contact information:
Property Factor CC
0861 106 306
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