Understanding the credit record system

Credit record agencies gather and sell information about the creditworthiness of individuals and businesses. Many businesses pay to access the credit records of potential clients to help them make a decision about the risk involved in working with them. For example, if you want to lease office space, the chances are that the property company will check your company’s credit record to assess whether your credit history shows that you pay your debts on time. The same goes for lenders. They use your business and owner’s credit records to make a decision about the risk of lending you money.

Credit bureaus gather data about consumers and businesses through various processes and researchers constantly gather data on businesses and update these databases regularly. Below is a list of the common items checked by credit bureaus. In reality, they gather far more information, but this is often done on a case-by-case basis.

• Details of the business and its owner/s including address, contacts, ID number, employment history, marital status and spouse details.
• Loans the business or individual/s have taken.
• Accounts they have opened.
• Credit cards they possess.
• Repayment history for all the above items including late payments, partial payments and non-payments.
• Court records (for orders or judgements against businesses and individuals). These include liquidations, sequestrations, garnishee orders and so on.
• CIPRO status.
• Bank rating of the business or individual/s. Banks give a rating to each client that scores them on a scale from A (excellent) to G (very bad) in terms of how their bank accounts are handled. The turnover through the account is checked, and stop orders or debit orders that are dishonoured are noted and used to determine the score. This rating is only valid for 24 hours and hence needs to be updated daily.

Companies pay to access your business or personal credit records when you apply for finance, property leasing and any other transaction where a decision needs to be made on your willingness to honour your debts. This information provides them with an insight as to how you manage your debts, and they use this to decide how risky it will be to loan you money. For example, a poor credit profile that contains negative data showing non-payment or regular late payments of accounts typically makes it difficult for a credit provider to justify the approval of a loan. However, a healthy credit profile shows the credit provider that you have a history of honouring other agreements and are, therefore, most likely to meet a further commitment (such as the repayment of a loan). 

As a result, it is important to check your credit rating (business and individual) and make sure that updated information is available. What many people do not realise, is that selected poor ratings remain on your credit record for a significant amount of time. Fortunately, the amendments to the National Credit Act signed in March 2015 offer relief for consumers.

For example, if a creditor or service provider has listed you for non-payment that resulted in them writing off the debt, this used to remain on your credit report for two years. Now, with the amendments, it will only remain on your credit record for one year. The even better news is that if you pay the debt in full, the listing must be immediately removed from your credit record. If you do not pay an outstanding account and the creditor/service provider takes legal action against you by issuing a judgement, this will remain on your credit report for 5 years.

Bear in mind that whilst the amendments to the National Credit Act can make it easier to remove these adverse listings, the credit record still contains information about your recent payment history (for example, how you pay a clothing or furniture account). If this history is poor, you may still be regarded as too high risk for lenders to approve a new loan.

If a creditor or service provider has been unable to contact a business or an individual, they can request a trace alert. This means that they will be notified when updated contact information is loaded onto your credit report.

This is a brief summary of all your accounts including the date the account was opened, the credit limit or amount of the loan, the payment terms, and the outstanding balance on each account, as well as a two-year picture of how you pay your accounts.

The credit bureaus also keep a record of all the companies that have access to your credit records.

Since credit bureaus' clients pay according to the amount of information they receive, most perform a standard check to give them the level of information needed to form a reliable picture of the business or individual's creditworthiness. 

Standard credit records contain the basic details of the business, its bank code, a scan of court records for any judgement or orders against it, and the status of a major account or two. 

If a more in-depth report is required, it will include details of the owners of the business, details of each owner’s involvement in other businesses and the vetting of a business’ trade references. These detailed reports can even contain an analysis of a business' financial statements.

Credit bureaus must be registered with the National Credit Regulator and are governed by the National Credit Act (NCA). The NCA provides a Credit Information Ombudsman who deals with queries and disputes that individuals and business owners have about their credit records.

The NCA has two main rules governing the credit bureaus:

• It obliges them to give consumers free access to their credit records at least once a year.
• It prescribes the periods for which credit bureaus may keep negative information about individuals: one year for slow-payment information, including late payments, skipped payments or partial payments, and five years for court judgments.
• If you repay the debt in full, then the negative record of late or non-payment of this debt must be completely removed.
• Theoretically, the NCA applies only to consumers (individuals as opposed to businesses), but practically, the credit bureaus treat businesses and individuals in exactly the same way. The reason for this is that the NCA defines all businesses with assets of below R1 million as consumers. Because the credit bureaus don’t have any consistent way of telling which businesses are classified as consumers, they simply treat businesses and consumers in the same way.

In South Africa, the details of a liquidated business stay on one's record with no expiry period. This is an important aspect of the credit record system. It has profound implications for entrepreneurs as they will always be linked to any liquidated company they've owned. Investigating which other companies a business owner is, or has, been involved in, is part of a standard credit check. 

By law, each person is entitled to one free credit report per year, so there is no excuse for not being aware of your credit record.

There are three key reasons why you need to know and manage your credit record:  

• It indicates your suitability for loan applications.
• It provides a quick alert for identity theft.
• You can scan for incorrect information and have it corrected before it impacts negatively on you (or your business).

If you see accounts recorded on your credit record that you have not opened, or note a suspicious number of credit enquiries when you know that you have not made any applications that would warrant a credit record check, then it is time to investigate further to see whether someone is using your details to conduct their business. 

It is a good idea to check your credit record annually. If you are the victim of identity theft, you must report a case of fraud to the police and obtain a case number as soon as possible. This will be needed when dealing with banks and retailers to resolve the debts the thief has run up. It's also important to report identity theft to the Southern African Fraud Prevention Service (SAFPS) via their helpline: 0860 101 248. Due to the serious nature of this fraud, consider contacting the Credit Information Ombudsman on 0861 662 837 to assist you in resolving the fraudulent debts.

South Africa has two major credit bureaus that keep credit records of businesses and individuals: TransUnion and Experian. They are independent companies, and each keeps its own database. A business that wants to investigate its own credit record will have to approach both companies separately, as one may have information that the other does not.

Remember that there is another set of agencies that keep their own detailed records of businesses - the trade credit insurers. They rely on the information kept in the databases of TransUnion and Experian, but also gather data of their own. If a business wants to do a thorough investigation into its own credit record, especially if it is interested in supplier credit, it will have to extend its inquiries to the two main trade credit insurers. 

The NCA gives the public access to the office of the Credit Information Ombudsman who will mediate in a dispute between a business owner and the credit bureaus. The Ombudsman’s office can order the bureaus to change the record if it is felt that the business owner is right.

The office of the Ombudsman reports that complaints from businesses are far too rare, and urges a more proactive approach by business owners. To date, most complaints have been from business owners who had been blacklisted in their personal capacity for business debts, even though they hadn’t signed personal surety for the unpaid debts of their companies or Close Corporations (CCs). These complaints are routinely upheld by the Ombudsman and rectified by the bureaus.

The Credit Information Ombudsman can be contacted on 0861 662 837.

Next steps: