South Africans are rightly concerned about their finances right now, but it\u2019s vital that you don\u2019t cancel your insurance or default on your insurance premiums, cautions Wynand van Vuuren of King Price.<\/p>\n
This will not only put you in a difficult financial situation if something valuable is damaged or stolen, it\u2019ll also affect your ability to get insurance, or any form of credit, in the future, as your credit score will be impaired, he said.<\/p>\n
Don\u2019t just stop paying. Bad credit decisions can come back to haunt you later. But, there are several things you can do to make sure you pay the lowest premium possible, especially during lockdown.<\/p>\n
“Talk to your insurer now and make a plan in the short term, rather than suffering long term consequences,\u201d said Van Vuuren, who is a partner of customer experience at the insurer.<\/p>\n
Defaulting on your insurance premiums will see you being reported to the credit bureau for non-payment, which will negatively affect your credit score.<\/p>\n
A credit score is a 3-digit number that helps lenders evaluate how safe or risky you are as a customer.<\/p>\n
It\u2019s based on the information contained in your credit report, which is a history of all the loans and credit you\u2019ve ever taken, and how you\u2019ve paid them back, as well as how reliable you are with your other monthly payments.<\/p>\n
So why does your credit score affect your insurance premium?<\/strong><\/p>\n King Price noted that insurance companies use a range of factors to assess your risk and determine the premium you will pay.<\/p>\n For a car, these include the security measures where you park your car; the age, make and model of the car; your age and driving history; your accident and claims history \u2013 and your credit score.<\/p>\n \u201cYou may not realise it, but your credit score is a powerful predictor of your financial behaviour. It shows lenders and financial institutions how likely you are to pay your bills and default on debts,\u201d said Van Vuuren.<\/p>\n “As such, when it\u2019s combined with other factors, it tells an insurer how risky you would be to take on as a client, and this risk will be reflected in your premium.”<\/p>\n According to insights and data company TransUnion, the biggest influence on your credit score is your account payment history \u2013 that is, how you manage your accounts and whether you make the monthly payments on time.<\/p>\n To improve your credit score, focus on paying the full instalment of every bill on time, so you\u2019re\u00a0offsetting past negatives with more recent positives.<\/p>\n It also helps to maintain a healthy mix of credit \u2013 store accounts, credit cards, a home loan, and service contracts such as cell phone accounts \u2013 to establish a good credit history.<\/p>\n The bad news is that a negative credit score can take two years to fix, King Price said.<\/p>\n Many pay little attention to their credit score until it\u2019s too late<\/strong><\/p>\n South Africans are able to access one free credit report every year from the four consumer credit bureaus, noted Kriben Reddy, vice president of TransUnion Africa\u2019s consumer division. He said that just 9% of the 25 million credit-active South Africans, actually access their credit report annually.<\/p>\n Regularly checking one\u2019s credit report and credit score should be part of every South African\u2019s personal financial habits.<\/p>\n \u201cThis will inform a person of their credit status, their personal payment history and, of course, the ability to acquire credit when it is needed,\u201d said George Roussos, chief operations officer at African Bank.<\/p>\n He said essentially a credit report is a record of your credit history and payment behaviour and reflects a six – 24-month view on how you pay your accounts. Credit bureaus then calculate your credit score from this as a three digit number to explain your credit behaviour. \u201cGenerally, the higher your score, the better,\u201d said Roussos.<\/p>\n With South Africans facing increasing financial hardship, this is a good time to consider your credit worthiness. The lockdown has impacted many South Africans\u2019 earnings \u2013 and that can make it tempting to default on payments or to apply for more credit to tide you over.<\/p>\n \u201cBut these and other actions may negatively affect your credit score going forward. And that\u2019s important, because you may reach a stage where you have to apply for, say, a loan to fund yours or your child\u2019s education. If you haven\u2019t checked on your credit score first, your application may well be rejected,\u201d said Roussos.<\/p>\n He said one cannot under estimate the value of a good credit score. \u201cIt\u2019s your ticket to better interest rates on a loan and being able to plan ahead knowing that you will qualify for some form of credit.\u201d<\/p>\n According to weekly research being conducted by TransUnion, week 2 results (week of 13 April) show that when compared to a week ago, more South Africans are being negatively impacted financially (81% vs 79% last week). On average respondents said they will be short about R7,000 in the near future and expect to run into a shortfall between two to four weeks from now. 88% are concerned about their ability to pay bills and loans.<\/p>\n And yet, said Roussos, \u201cfinding a way to service these bills is essential if consumers are to maintain a high credit score.\u201d Roussos says it is a vital piece of information if potential lenders consider before they decide whether or not they will give you credit.<\/p>\n
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