More than 72 percent of a group of South Africans who participated in a TransUnion survey released recently, agree that their credit score is important to them, but only 45 percent say they understand how credit reports are generated.
In terms of the above mentioned survey, most consumers are also confused about credit scores and reports themselves as only 36 percent of respondents recognize that credit reports are different from credit scores. A credit report is a record of how consumers manage their money. This data is then distilled and calculated to create a 3-digit credit score.
“Credit is foundational to overall financial wellness, but so few South Africans are monitoring their credit, and many don’t understand credit basics. This data, against a backdrop of the recent continuing negative Consumer Credit Index outlook released by TransUnion in August, as well as a National Credit Regulator report that identified a 40 percent impairment credit record rate across 24 million credit active South Africans, makes this issue especially relevant,” said Garnet Jensen, Senior Director for TransUnion.
According to the survey, few consumers take even the most basic steps to understand their credit. Among those who participated in TransUnion’s survey referred to above, 33 percent said they had never checked their report, 41 percent claim they have checked in the last year and only eight percent report having checked in the last 30 days. But according to the most recent Credit Bureau Monitor report released by the National Credit Regulator, less than three percent of credit active South Africans check their free credit report annually, as entitled by law. This data further underscores consumer misunderstanding as those self-reporting claim to check their report more regularly.
Even among those in the survey who claim to regularly check or monitor their credit, a majority incorrectly responded that age (62 percent) and employment history (55 percent) are factored into their credit score.
“These findings signal a need for better credit education for all South Africans,” said Jensen. “One’s credit directly affects his or her ability to take a loan, and all consumers, even those who are already regularly checking their credit scores, will benefit from a deeper understanding of how it’s calculated.”
Consumers ages 18-54 are among the most engaged in managing their credit. In fact, more than 64 percent of respondents in this age range say they are actively trying to improve their credit score. And of those, 43 percent say their credit score has improved over the past year.
To help South Africans better understand credit basics, TransUnion is educating consumers about their credit scores and debunking common myths, like:
Myth #1: Income level is reflected in a credit report
Fact: Salary is not a direct contributor to a person’s credit score but some lenders may evaluate income before issuing a loan to make sure the borrower will be able to make their payments. Regardless of a person’s salary level, it’s important to use credit responsibly and pay bills on time and in full each month.
Myth #2: It’s impossible to know what’s factored into a credit report or score
Fact: Credit seems daunting, but in fact there are many resources available to help you understand your own credit standing. For example, you can find free articles on credit monitoring and maintaining a healthy score atTransUnion.co.za.
Myth #3: Checking a credit report can lower a credit score
Fact: A person checking their credit score will not affect it as this is considered a soft inquiry. A soft inquiry happens when a person or company checks a credit score in the course of routine work. However, if a creditor or potential lender looks at a potential borrower’s credit report and uses that information to decide whether to extend credit to them, then that is considered a hard inquiry and can have a negative impact on their score.
About the Survey
The online survey includes responses from 1,001 South African consumers ages 18 and older. Consumer sample for the survey was provided by Toluna and sourced from an online panel of English-speaking South Africans with internet access. The survey was conducted online between August 10, 2016 and August 17, 2016.
We are a trusted provider of global information solutions for assessing and managing risk, driven by a belief that information can help advance our industry, facilitate commerce and ultimately increase the standard of living for consumers around the world. In that light, we see information differently—not just for what it is, but for what it can help people accomplish. Because when businesses and consumers have access to more complete and multidimensional information, they can make more informed decisions and achieve great things.
Source: TransUnion Press Release