Amanda Buthelezi was still at varsity when she first opened a credit account at a clothing store, a decision she would later regret when she started working as a young adult.
Buthelezi, 28, was in her late teens when a clothing shop contacted her and offered her pre-approved credit of R5,500 to buy clothes; she accepted the account but did not immediately use it.
“I didn’t think much of it because I was getting a stipend from my dad and I wasn’t short of clothes. But when I realised that the shop also sells cellphones I decided to use the account.” She used some of her R1,000 stipend to pay for the account.
“After buying the phone I started looking at other things to get for myself. I began buying things like accessories and then clothes even though I didn’t need them but the pressure of being a fashionable student got to me and I started buying more stuff without thinking twice because I had an account,” said the former University of KwaZulu-Natal student.
In her second year her father lost his job and problems started for Buthelezi. Her family struggled financially and the stipend dried up and she couldn’t keep up with her monthly bills, including the clothing store account. She ignored letters of demand and dodged calls.
“This went on for some time and I completely forgot about it until I left varsity in 2015. The following year I began a new job and everything was going well for me and I was buying everything with cash until I got the shock of my life when I wanted to purchase a car through a bank. I was told that I had been blacklisted. It didn’t immediately click that I still owed the clothing store. I thought that that debt had been written off,” said Buthelezi.
On further investigation she realised she owed R10,000 to the store and paid it off in just under seven months – but it would take a few years to have her name removed from the credit bureau, which meant she couldn’t get any credit until her name was cleared.
Buthelezi is among many South Africans who do not know their credit scores and when they eventually find out what it is, it becomes difficult for them fix their status.
Fiona Ssemanda from DirectAxis, a company that makes loans, says credit score is important as it represents one’s financial reputation. “It is more influential than any other reference you can provide and should therefore be checked regularly,” said Ssemanda.
She explained that your credit report can determine whether you qualify for a home loan, vehicle finance, a personal loan or other forms of credit. It also determines what interest rate you will pay, if a landlord will consider you a suitable tenant and that a potential employer can check your financial behaviour.
“Your credit score affects more aspects of your life than most people realise. From banks to cellphone companies, everyone bases their decision about how much of a risk you are based on your credit score.
Although it is recommended that consumers check their credit scores once a year, Ssemanda warned that this may not present an accurate profile.
“A lot can happen in a year and if there’s a sudden downward change in your credit score for no apparent reason, you need to respond quickly. It could be anything from an error to identity theft,” she said.
How To Improve Your Credit Score
Consumers can check their credit scores by visiting websites of credible credit bureaus such as TransUnion and Experian.
Fixing a bad credit score requires discipline, sacrifice and may take some time to rectify. Here are some tips to improve your score.
- Cut back on credit where you can. While credit is a very real part of many South Africans’ lives, there’s usually room to cut back. Assess whether you really need all those accounts and which ones are adding value to your life.
- Settle your accounts before closing them. Contact the relevant credit providers to check that your name is no longer on their records.
- Reduce your debt-to-credit ratio. Just because you have a R20,000 limit on your credit card doesn’t mean you need to reach it every month. Experts recommend you keep your balance at 30% of the limit – in this case not more than R6,000.
- Pay off debt. Create a budget that includes paying off creditors each month.
- Seek debt counselling. If you are feeling overwhelmed, approach a professional debt counsellor who can help you with a budget and will approach creditors on your behalf to make arrangements to pay your debts while managing your living expenses.
- Be proactive. There’s nothing worse than dodging phone calls from bill collectors. Before they have a chance to contact you, let them know your situation and that you are making a plan to rectify it.
- Be consistent. Don’t just pay back debts when you have good months – try to pay off the same amount every month.
- Don’t apply for credit too often. Did you know that every time someone does a credit check on you, it lowers your score?
Source: RCS
Consumer
Tel: (011) 280 5343, Email: consumer@sowetan.co.za or write to PO Box 6663, Johannesburg, 2000
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