Before a lender extends credit to anyone, a thorough background check is conducted to determine if the person can afford the debt, and most importantly, if they have a favourable history by living up to their obligations.

Ariel Eliasov, Head of Credit for FNB Loans, says: “Credit checks are done to ensure that lenders act responsibly by only lending to customers who can afford the repayments and are unlikely to default on the debt. The process does not only help the bank manage its risk, but it is a mechanism to protect customers from taking on more debt than they can handle. If you have a bad credit history, it’s possible that a lender will decline your future borrowing applications.”

“A bad credit record is normally a result of not paying your full monthly installments timeously or having a heavy debt burden relative to your income, including over-utilising credit facilities like a credit card. All these factors can lead to a poor credit score. It is therefore critical to have a budget in place to make sure that you have a good view of your financial status and can afford debt before taking it.”

In other instances, a poor credit score could result from having a meagre credit history or none at all. To avoid this, it is recommended that customers demonstrate favorable payment discipline on a small credit facility such as a retail store card or, if the customer qualifies, on a credit card. This will give a lender comfort if the consumer applies for more credit.

As part of money management, it’s important for consumers to know their credit status, not only as a means for checking eligibility for debt, but also to have a wholistic picture of their exposure to debt.

Why it’s important to know your credit status:

Know your track record: Judging from your monthly budget, it may be easy to tell if you are over indebted or not, but when you access a credit report it will give you a clear picture of how credit providers perceive you and your prospects to borrow further. This report takes into consideration your current and historical debts including your payment history, to form an opinion about how you handle credit. South Africa has several credit bureaus and most of them will allow you one free report annually after which you can pay to access additional reports.

Maintaining a clean credit record: If you would like to maintain a clean credit record it’s best to know where you stand with creditors. After accessing the report, look out for errors and if you note any, report them to the credit bureau immediately – this will help you to avoid any adverse findings against you.

To help you improve your finances: adverse findings against you on a report do not spell doom, you can always improve your score, it will just take time and commitment. A good score is not only about missed payments but also about how you use your credit. Having several credit facilities that are all maxed out or taking our multiple loans quickly after one another can affect your score even if you are up to date with payments.

“Borrowing from a responsible credit provider such as your bank could also allow you access to additional financial tools and services to help you manage your money. nav>>, on the FNB Banking App is such tool that helps you to easily check how your debt commitments compare against your incomes and expenses,” concludes Eliasov.