Being debt eligible means that you satisfy all the conditions to obtain debt and receive credit from banks or financial institutions. Here’s how to find out if you are debt eligible and whether you qualify for credit, and what to do if you don’t.
What is a credit check (ITC)?
Whenever you apply for credit from a bank or financial services provider, the creditor will run a credit check as part of your application process. This credit check will access your credit records from one of South Africa’s credit bureaus: TransUnion, Experian, Compuscan or XDS.
These records contain your complete credit profile, including previous credit applications and the amount of debt incurred to date. Credit providers use your credit status to determine whether you qualify for the credit you need (whether you are debt eligible). Furthermore, a good credit status can help you secure a higher credit limit or lower interest rates to your advantage.
When the credit bureau calculates the credit score (0 to 999) based on these records, the bank or financial institution will know whether you can afford any more debt (high score) or are too indebted or struggling with current repayments (low score). In the latter, the creditor will likely not grant a further loan application until the borrower reduces or eliminates existing debt to an acceptable level.
Interestingly, a credit check in South Africa became synonymous with an ITC check, a process named after the country’s leading credit bureau for many years, ITC Credit, now TransUnion. Similarly, a credit record is referred to as an ITC record. Nowadays, it simply means a credit check or credit record, irrespective of the affiliated credit bureau.
How do I check my ITC record?
There are various instruments to verify your credit record. For example, you can easily request a credit check or ITC check online to find your credit status, and most financial providers will offer such a service for a nominal fee.
However, the TransUnion credit bureau found that fewer than 5% of South African consumers use the legislation that entitles them to obtain a free credit report every year from every credit bureau in the country. This opportunity to verify and understand your credit report proves useful before you decide to apply for another loan.
The credit report gives a good indication of your current debt eligibility and the chances of getting another loan application approved. Sadly, most consumers access this info when it is too late after receiving rejected applications for home loans or vehicle finance.
Be careful not to abuse the credit check feature. The number of frequent credit checks is an indication of new credit enquiries and applications. Applying too often for a loan may be interpreted as a financial struggle. Limiting how often you apply for new credit shows good financial management, and it improves your credit record and, subsequently, credit score.
How do I improve my credit record and become debt eligible?
Improving your credit record is essential to become debt eligible at your next credit check and maximise the chances to have your next loan approved. Here are some things to keep in mind:
- Build your credit record. Showing that you can manage debt well and repay a credit line, for example, a credit card or retail account is a positive thing in your credit check. It also improves your credit score.
- Check your credit report for errors and negative info. Always ensure the credit report is free of inconsistencies. Sometimes, updating your profile can mean the difference between being debt eligible and not qualifying for a loan.
- Get paid debts cleared from the credit report. Once you have paid a debt in full, the creditor must inform the credit bureau, which is then entitled to remove or clear the debt from your credit record. Similarly, if you had court judgments in the past and you paid off the debt, the credit bureau should receive either proof of payment from the credit provider or a valid court order rescinding the judgment. Ensure this debt is cleared before applying for new credit.
- Keep up with the repayments. Missing payments or paying later than usual will negatively reflect your credit history via the credit check. Maintain your credit record pristine by repaying debts in full and on time.
- Pay off outstanding debts. Regularly catch up with past-due accounts to reduce current debt as fast as possible and make room for loan applications that require a high credit score for approval, e.g. property loans. Start with paying off high-interest rate unsecured debt: credit cards, personal and consumer loans. Close any outdated accounts that you are not using anymore.
- Reduce your credit ratio. This ratio refers to the percentage of the amount you still owe to creditors from the total available credit limit on a specific account, a credit card, for example. If this percentage is low, you are doing an excellent job in repaying the debt. If the rate is unusually high, you are sinking in debt faster than you can repay it.
- Reduce high indebtedness via a debt review or debt counselling process. You have to be over-indebted, unable to afford to service your debt or struggle to make the monthly repayments. A debt counsellor will look at your current income, expenses and debt to determine the best course of action and draw up a new budget so you can manage to pay off the debt.
ezDebt counsellors can negotiate with creditors to accept a new payment plan with a reduced monthly repayment that you can afford.
Our professional ezDebt advisers help you stay on track with debt repayments through a quick and affordable debt review process. All our debt counsellors are registered with the National Credit Regulator (NCR). Get in touch at www.ezdebt.co.za.