WENDY KNOWLER | How to improve your credit score and avoid impersonation fraud

“You can improve your credit score by about 40% overnight with this simple, highly effective technique.”

That sounds like one of those too-good-to-be-true weight loss adverts, and one could be forgiven for thinking there’s some form of rip-off waiting for you, should you respond.

Not this time. The men behind that statement are Justin Harrison and Dawie Bester of my mycreditstatus.co.za. The personal finance gurus started the credit bureau in 2013, and proudly claim to be “the only credit bureau in the country that started with the sole intention of helping the consumer”.

Bester has spent the best part of the past decade working out how the credit score algorithm works to give consumers insider tips on how to dramatically improve their credit score.

That 3-digit number indicates to credit providers how big or small a risk you are when it comes to servicing your debt, hence it determines the likelihood of your application being approved.

But that’s not all. It also determines the interest rate you get. And here’s why that’s important, Bester says.

Let’s look at two people, A and B, who both apply for and are granted a R1m home loan.

A, who has a good credit score, gets an interest rate of 7%, while B, whose credit score is not that great, is saddled with a 9% rate. Over the term of the loan, A will pay R200,000 less than B. That’s a huge difference.

But that’s not all — your credit score also influences whether your rental housing application is approved, and your chances of landing a job. So what’s the “magic bullet” for dramatically increasing your score?

It’s about your credit utilisation ratio. That’s the amount of debt you use versus the amount you have been granted.

Ideally, that shouldn’t be more than 40%, say Harrison and Bester. So if you have a R20,000 limit on your credit card, you shouldn’t use more than R8,000. About 40% of your overall credit score is based on that ratio, hence its huge impact on that vital number. So why don’t we know this; why isn’t our credit utilisation ratio and its significance revealed on our statements and credit reports?

“Banks will promote using your credit card and your available funds, but what they won’t tell you is that if you make use of your full available credit, you won’t have an ideal credit score, which means they will impose a higher interest rate than the person who has a better credit score,” Harrison says.

If it’s not possible for you to spend less than 40% of your current credit card limit, there’s something you can do about that, Bester says.

“Just apply for a higher credit limit. And then make sure you stay below 40% of that. It’s as simple as that.”

But not if you don’t have good financial discipline and regard a credit limit as a target. If that’s the case, you’ll end up in even worse debt; less likely to keep up with repayments, and that will have a disastrous impact on your credit score.

Other ways to get your credit score up include not making too many inquiries or quote requests, and keeping your accounts open for long periods.

Harrison and Bester recommend checking your credit score every month.

Here’s why: first, impersonation fraud is rife so you need to make sure someone hasn’t been opening accounts in your name.

Second, one out of five people have “mistakes” on their record, which affect their credit scores unjustifiably. Raise a dispute with a credit bureau, and watch your score increase.

There are four credit bureaus in South Africa — Experian, TransUnion, XDS and Compuscan — but you don’t have to contact all of them.

They all share the same data, because all the creditors feed data to Sacrra — the South African Credit & Risk Reporting Association — which takes the data and distributes it to the credit bureaus. You are legally entitled to one free credit report from each credit bureau, but getting into the habit of doing monthly checks is sound advice.

Shortly after new year, a member of the 1 Family 1 Stockpile Facebook group posted this warning to her fellow 530,000 members: “Please check your credit report as many times as you want.

“This morning I checked mine; alas, someone opened a store account in May 2021 using my details.

“I have never lost my ID.

“Now an investigation has been initiated to clear my name, which will take three weeks to conclude.

“I’m lucky they didn’t get a high credit limit — they only spent R500 and then stopped, but they didn’t pay since May 2021 so that now has interest on it.

“I have R978 sitting on my credit report, and I didn’t know about it all this time.”

The awful truth is that thanks to a series of data breaches, our personal information is in the hands of criminals — ID numbers, bank account details, phone numbers, employment details, the works. To stay one step ahead of them, check your credit report monthly, and sign up for credit alerts from a credit bureau, so you are told when a credit application is made in your name.

Also register with the South African Fraud Prevention Service, which requires credit providers to do extra checks when presented with a loan or account application in your name. It really is worth the effort.

As is taking the advice of Harrison and Bester about that credit utilisation score. Knowledge is power!

* For more really useful personal finance advice, go to mycreditstatus.co.za.

• GET IN TOUCH: You can contact Wendy Knowler for advice with your consumer issues via e-mail: consumer@knowler.co.za or on Twitter: @wendyknowler.

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