What Covid did to your credit score

 

You may have avoided contracting Covid — but did your credit score? Let's take a closer look at what's happening and what you can do about it.

 

A group of very clever bean counters have clustered together, licked their thumbs and held them slightly above their heads for a few seconds. They've withdrawn and examined them — perhaps with a gentle sniff — and ascertained that Covid-19 cost the global economy $114 trillion. That's the eye-watering equivalent of R1.92 quadrillion, or the contents of 480 trillion Phala Phala couches.

 

That's an incomprehensible number, representing 120% of the entire global GDP. What it means to you is that your ability to buy and pay for things, as well as manage debt, has been significantly impacted by lockdowns, shutdowns, downsizing, closure of businesses and job losses.

 

At the peak of the Covid-19 lockdowns, many lenders relaxed their criteria and gave payment holidays. That improved many people's relationships with credit— but, ultimately, the debt will need to be paid... and that flexibility will start to disappear.

 

What's a credit score?

A credit score is a numerical expression of your ability to access credit to make purchases using money that's not your own — think bank loans, store accounts, etc. It's based on your credit report, which is based on information sourced from credit bureaux about your past management of credit.

 

Basically, your credit score represents your standing when it comes to credit. Although different institutions tend to use different scores, it's usually represented as a number from 0 to upwards of 850. At any score below 550 , you might struggle to secure any credit, while at numbers approaching 850, banks will (probably!) be sending you flowers whose petals are blank cheques.

 

If you take out credit and don't keep up with repayments, your score drops. If you apply for credit in multiple places, your score drops. If you keep up your repayments and manage your debt vs income well, your score increases.

 

A low credit score also affects the rate at which financial institutions will loan you money. The higher the score, the better your chances of securing a lower interest rate, like prime or below, because you're seen as a lower risk and the house always wins.

 

Being given favourable terms and payment holidays may have improved your score, but as the corporate goodwill evaporates and reality intervenes, it could slide again swiftly because you get nothing for nothing and you'll have been paying interest on your outstanding debt, even while 'taking a break' from paying. Really, the house always does win.

 

How to improve your credit score after Covid?

How do you fix your credit score? Well, first you have to know your score. The National Credit Act dictates that every citizen is allowed to access their Credit Report for free once a year. You can pay to access it as many times as you like after that, but you get one freebie, so use it wisely. Your friendly Hippo will allow you to access Credit Reports from four bureaux in one place.

 

Once you know where you stand, you can take steps to improve it. Your Credit Report will show where you've been accessing credit and how you've been managing your debt. It's a handy place to see if you've been the victim of identity fraud , where someone has fraudulently opened an account in your name and is living large and leaving you holding the can.

 

If all the credit allotted to your name is legitimate and you're struggling to make ends meet, honesty is literally the best policy. Reach out to your bank and credit providers and tell them you're in trouble and they may be able to make arrangements to help you.

 

They really, really want your money and will help you to help themselves — in a good way. Never just 'skip' instalments until you have the money again or you'll risk your credit score, along with a knock at the door from a man bearing unpleasant paperwork.

 

Managing your score doesn't mean eliminating or avoiding debt, but rather managing it well by:

 

• paying your bills on time
• avoiding taking out more store or bank credit than you can safely afford to pay
• always paying more than the minimum repayment, if you possibly can
• maybe checking your couch for a rogue $4 million (just be careful!)

 

This article is for informational purposes only and should not be construed as financial, legal or medical advice.