Credit profiles can smooth the financial planning process
They say 80% (or is that 85%) of statistics are made up on the fly, so I take the many survey and poll results that land in my inbox with the proverbial pinch of salt… The latest poll, courtesy of mortgage originator ooba, concludes that 69% of South Africans do not know their credit status. Why is this fact important? When a financial planner conducts a financial needs’ analysis they must determine whether their clients are in good financial standing… What the poll suggests is that you can no longer rely on the client to provide this information! Kay Geldenhuys, Property Finance Processing Manager at ooba says that many consumers with impaired credit records are obviously unaware that they are on this list, or are there as a result of a “minor” violation.
It appears the 2008/9 recession and continued cost of living pressures have left many local consumers with black marks against their credit records. The Credit Bureau Monitor Q2 2011 Report confirms that the number of credit active consumers with impaired credit records increased by 174 000 to 8.8 million. This means that at 30 June 2011 some 46.7% of consumers had impaired records! An alarming 18.5% of consumers are in arrears three months or more while 13.9% of consumers have adverse listings and 14.3% have judgements and administration orders against them.
Banks and other institutions rely on your credit record
Lending institutions insist on a credit check before granting credit. Each time you apply for credit – whether for a store card, bank loan, hire purchase agreement or mortgage bond – the lender will request details of your credit profile. Banks look at these records to determine your performance on previous loans and to determine how “safe” it is to extend additional finance to you. “The riskier the investment, the less likely that banks will approve financing for a home loan. Consumers who are unaware of their credit profile are therefore at risk when applying for home loan finance and may have difficulty securing a mortgage,” says Geldenhuys.
Professionals in the residential real estate game will be particularly disappointed with the progressively weaker outlook among borrowers. A poor credit profile remains one of the main reasons for a bond application being refused. “It is therefore imperative for potential home owners to be aware of their current credit profiles at all times,” she says. “To optimise your chance of securing your desired home loan, make sure you keep a clean credit record by ensuring that all of your accounts have been paid to date before you apply for finance!” Potential home owners should also consider prequalification as an option when shopping around for a home. You can get the bank to do an a basic affordability check – which includes a routine check of your credit profile – before making an official home loan application.
A disciplined approach to store cards
Your client’s interaction with various creditors should feature during the financial needs analysis. A basic budget would certainly show up store accounts, credit cards or other loan repayments that are placing your client under undue stress. A close inspection of your client’s credit profile could even reveal defaults or problems they have forgotten about. It makes sense for clients to address any credit repayment hiccups before purchasing additional risk or savings products. “Most retail stores and banks’ default listings will remain on a consumer’s credit profile for two years,” says Geldenhuys. “If you choose to close an account you should settle the account balance and then contact the relevant credit provider to check that your name and record has been cleared. If you have a judgment on record, clear the account and then contact a litigation attorney to have the judgment rescinded.”
If your client has fallen behind with his / her payments they should immediately contact professionals who can offer assistance. Your client’s consumer rights and the debt counselling process are well documented on the National Credit Regulator website (http://www.ncr.org.za/).
Getting the facts straight
It is quite simple for your clients to obtain a copy of their credit profile. They can activate a consumer profile with TransUnion ITC or Experian, which will allow them to check a credit record 24/7. These companies will supply your clients with a free copy of their credit report once per year. I took advantage of this free report to make sure my record was unblemished… The process was painless and I had an 8-page report in my hands within minutes… I’m happy to report there were no judgements, notices, notarial bonds, defaults or trace alerts against my name. But that’s not to say the report is 100% accurate. My personal details section was littered with errors including incorrect work telephone numbers, misspelt street addresses etc.
Editor’s thoughts: Clean credit is usually associated with applications for financing. Yet it makes sense an individual with a clean credit record will be less likely to lapse a life insurance policy or miss a short-term insurance premium. Do you think the credit profile has a place in the financial planning process? Please add your comment below, or send it to [email protected]
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