Keep a clean credit slate

The credit bureaux maintain consumer credit information and are regulated by the National Credit Regulator (NCR). They also create consumers credit profiles from information received monthly from credit providers. A recent information bulletin issued by the NCR indicated that as at September 2008, the credit bureaux had records for 17.53 million credit-active consumers. On average each credit-active consumer has three active accounts.

Consumers are considered to be “in good standing” if none of their accounts are more than two months in arrears. The bulletin indicated that the percentage of consumers in good standing decreased from 60.4% in June 2008 to 59.5% in September 2008. Overall, the percentage of consumers in good standing has decreased by 4.1% since June 2007.

The bulletin also indicated that the number of consumers with impaired records increased from 6.79 million in the quarter ending June 2008 to 7.10 million in the quarter ending September 2008. The percentage of consumers with impaired records also increased from 39.6% in June 2008 to 40.5% in September 2008. The comparable percentage in June 2007 was 36.4%

“It is no wonder then,” says David Smith CEO of Interfusion Finance, a company that assists home owners to restore their credit rating, “that our loan book has experienced tremendous growth over the past 12 months.” Along with its sister company, Credpro, Interfusion Finance has assisted thousands of consumers over the past eight years in cleaning up their credit profiles and applying for finance. The advice from the credit professionals remains: strive to maintain a favourable credit rating. “Keeping a good credit rating is far easier than trying to repair a poor one,” says Smith. “Avoid making late payments to creditors and avoid paying less than the required monthly instalment. Check your credit record. If you do have a judgment listed against you, you need to take the necessary steps to “fix” that record. It is very important that you restore your credit worthiness.”

The following 10 points will help you to maintain a healthy credit record:

1. Keep to your regular monthly payments, and make the payments on time.
2. If you fall into arrears, get up to date as soon as possible and don’t fall behind again.
3. Don’t pay less than the minimum instalment each month, so be sure you can afford the instalments before applying for the credit.
4. To determine whether or not you can afford your repayments, draw up a monthly budget for yourself. The trick is to stick to it and cut out unnecessary expenses if need be.
5. Research shows that the average South African spends 75% of his or her after tax income on debt, which doesn’t leave much for anything else. Reduce your debt by paying more than the minimum payment on your accounts. Do it one at a time starting with the most expensive debt (the one with the highest interest rate).
6. Aim to reduce the amount of money that goes on debt every month to between 30% and 50% of your after tax income.
7. If you are unable to make a payment due to unforeseen circumstances, talk to the creditor concerned and make alternative arrangements to pay back what you owe. They may well accept reduced monthly payments spread out over a longer repayment period. It is best to pay something every month, if only to show your goodwill and establish a payment record in the event they decide to take legal action against you. It is best to get an agreement in writing stating that they will not take legal action for the period of the repayment arrangement.
8. All your effort in paying off your debts will only work if you do not take on more debt. So, when you are tempted to buy something, remind yourself that you are trying to pay off your accounts and that it will be worth it to be patient for a while.
9. It is important to note that points number 7 and 8 do not apply to a debt for which there is already a judgment listed against you. If you have an old legal debt, you are far worse off if you pay it off through collection attorneys. You will probably pay a lot more than what you should since you will be paying the attorneys fees as well as the original debt.
10. Don’t ignore a letter of demand, since it is often followed by summons from a court. While it can be really tempting to ignore it and hope it goes away, be assured it will only get worse.

Smith concludes by saying that it is expected that the level of debt stress will continue to remain relatively high throughout the year. However, he says that with interest rate cuts and other factors positively stimulating both the global and local economy, it is anticipated that the general level of consumer debt stress should start to reduce once the recovery gets underway throughout the course of the year.