Scoring badly

Understandably, many people now find themselves with debt or in arrears with rental payments – and debt reflects badly on one’s credit score. Thankfully this can be resolved.

WORDS: HELÉNE MEISSENHEIMER – IMAGES: SHUTTERSTOCK

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uring the lockdown period many tenants asked for a reprieve on their rent because of a lack of income or because they lost their jobs. Fortunately, many landlords and tenants managed to come to an agreement to reduce or postpone rent obligations, or to use a damage deposit to cover rent. 

Johette Smuts, head of data and analytics, PayProp, says the important thing to remember is that if you made such an agreement, you have simply postponed the payment of your outstanding rent. You still have to settle this debt and the sooner you do that the better as a bad rental record could negatively affect your chances of securing a new rental contract elsewhere.

Likewise, if you want to make use of the current record-low interest rate and buy your first home, you may find that the banks will refuse your application for a home loan.  

Adrian Goslett, regional manager and CEO, RE/MAX of Southern Africa, says a large number of potential homebuyers are referred to attorneys because their home loan applications are denied as a result of their credit record.

If I have debt, am I blacklisted?

Blacklisting is an outdated term that refers to the time when credit bureaus only collected negative information on someone’s credit record. If a client was behind on their payments for a specific product, the credit provider would blacklist them with the bureau.

How does it work today?

Today credit bureaus work differently. Mfundo Mabaso, growth head: FNB Home Finance, explains that today credit bureaus keep record of your credit behaviour, both good and bad. 

When you apply, for example, for a home loan, the bank will consider your full history of repayments (both those that reflect a good standing and those that indicate payments in arrears) and this results in a credit score. “Information such as judgements against a customer contributes significantly to negative credit outcomes,” he says.

How do I know my credit score?

By law, South African citizens are entitled to one free credit report per year from one of the credit bureaus: TransUnion, Compuscan, Experian, and XDS. If you want to get more than one credit report in a year, you can get a second from any of the previously mentioned credit bureaus for a minimal fee. You can also get a free credit report from ClearScore.

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Why won’t the bank approve a home loan

According to Mabaso banks are required to practise responsible lending. This means they should only provide credit to clients who have shown in the past they are able to stay up to date with credit payments. 

If a person has a negative credit record, it could indicate that the client may not be in a position to pay back a home loan, which is usually one of the largest loans that a client will have. 

“Owning a home is an exciting and an enormous commitment for clients, thus assessing whether clients are able to service their home loan effectively and with minimal pressure ensures fair treatment and success for consumers,” he says.

Are there any exceptions?

It’s possible that you may have negative listings in error. If you suspect that to be the case, you should contact the credit bureau to resolve this matter. Should the outcome of a home loan application be unfavourable, most banks have an appeals process where credit specialists consider each client’s unique situation.

What can I do to improve my credit record?

The bottom line is, if you have fallen on hard times, you need to clear your debt first before you apply for a home loan (or any credit). Many banks have money management tools that can help you get started on repairing your credit profile. Mabaso advises that you consult your bank or credit provider on how you can bring your account up to date as soon as possible. 

If you have defaulted on a payment, it will remain on your credit record for up to two years. Goslett recommends that, once you’ve settled your debt, you ask your creditor for written proof that your credit record reflects that the debt has been paid. 

It is more complicated to have a court judgement removed from your credit profile. A Magistrate’s Court will deal with matters up to R100,000, while any debt that exceeds R100,000 will fall under the jurisdiction of the High Court. 

If the debt isn’t settled, it will remain on your credit profile for five years before it’s automatically removed. If you manage to settle the debt before the five-year period, an attorney can apply to have the judgment rescinded. “The creditor will need to provide their consent before the judgment can be rescinded,” says Goslett. 

The best policy is to try to stay up to date with all credit payments whether rental or other forms of debt. If you can’t make a payment, be honest and let your creditors know so that an arrangement can be made to restructure the payments where possible so that it does not reflect negatively on your credit record.

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