Your credit worthiness is an important factor when it comes to home loans, vehicle finance, better job opportunities and so much more. Despite encouraging trends, South Africans have a serious debt problem with the current technical recession, high rates of unemployment and low wage growth more and more South African are racking up debt. According to the National Credit Regulator (NCR) 39.1% of credit consumers visible to the formal system had an account overdue
BusinessLive reported that around 3-million new consumers are now eligible for credit under the new credit scoring system. Absa economist Peter Worthington reported that they had received the highest number of credit applications since 2015. Although this may sound promising to consumers, the rejection rate for new credit has also increased to 50.1%
At MarisIT we are committed to ensuring informed credit decisions, so we’ve put together a list of things to help you improve your credit worthiness, so you can make the right financial decisions moving forward.
Your credit score
The first step in assessing your credit worthiness is to find out your credit score. Your credit score is an indication of how risky you are to lenders. This score takes into account any defaults or outstanding payments you have under your name. If your credit score is good, then you simply need to focus on maintaining this. If it is not a good score, you could be in for some serious work to change this. However, a bad credit score rating is not permanent, and it can always be turned around.
You should regularly check your credit score. Under the National Credit Act of 2007 credit bureaus are obligated to provide you with one free credit report each year. Make use of this service by visiting the three major credit bureaus in South Africa: TransUnion, Compuscan and XDS.
It is easy to overspend and live beyond your means. Often consumers will be told by banks that they are qualify for a large loan but this does not mean you should take up this offer. If you cannot afford it today, what are the realistic chances of you affording it in the future?
Another smart move is to use your credit card as little as possible to cut down on debt creation. Your credit card is not the “golden ticket” and should be used sparingly and only if absolutely necessary. You will always have to pay up on your credit card and failing to do so will incur penalties and could hurt your credit score.
To make sure you are not over spending on your credit card it is important to set a realistic budget. Ad hoc bills can really add up at the end of the day, so you need to be strict with yourself. You should draw up a budget that is accurate and conservative. Write you’re your expenses and compare them to your income, try find places to cut down – that extra coffee or takeaway or extra t-shirt can add up every month. Set up your budget and stick to it so as to prevent accidental overspending. If writing your budget down or making an excel spread sheet seems like too much of an inconvenience there are a variety of free budget management apps that you can use.
Dig out of debt
The most obvious way to increase your credit worthiness is to reduce the amount of debt you have. Debt can be overwhelming to approach, but it must always be considered seriously. There are two major options when trying to pay off your debts. First, you can attempt to pay off your smallest debts off first and rely on the snowball effect. The second option is the avalanche method where you focus on paying off the highest interest rate first.
Either way, the longer you leave your debt, the worse it will get. If you don’t know where to begin, consider reaching out to a debt consultant – they can be an invaluable assistant if you have fallen behind on your payments. Alternatively, you can reach out to your debtors directly to arrange a lighter repayment schedule.
The most important thing when it comes to your debts is to be accountable and honest with your creditors, as well as yourself. You cannot improve or solve a problem if you aren’t willing to acknowledge that it is real – if it’s mentionable, it’s manageable.
An essential step in improving your credit worthiness and reducing your debt is to become financial literate. This doesn’t mean that you have to go out and get an economics degree, but it is time to do some reading. Focus on the National Credit Act and its regulations, the National Consumer Tribunal and the National Credit Regulator. Read up on the role of debt counsellors and credit bureaus like MarisIT.
Your financial freedom depends on your financial knowledge. You can’t solve a problem if you don’t understand it to begin with. By improving your financial literacy, you won’t just broaden your knowledge on your consumer rights but you will also establish yourself as financially-savvy person that is in the know.