Running into financial trouble happens to the best of us – but rather than running for the hills or putting our heads in the sand, the best way forward is to confront your debt situation sooner, and put up your hand if you need help.
It is alarming to know that the number of consumers listed as having impaired credit records totalled 9.6 million for the quarter ending September 2018. In addition TransUnion’s Consumer Credit Index for the same period indicated 2.4% year-on-year increase in consumer defaults. In the constrained economic environment we find ourselves in, this is a warning to consumers to keep a close check on their credit.
If you find yourself falling behind on a payment – tackle it head-on, otherwise:
A great place to start is by reviewing your credit report. Consumers are often unaware or too nervous to check their credit status, particularly if they suspect they’ve defaulted on a payment or have a judgment against them. In fact, only 3% of South Africa’s 25 million credit-active consumers check their credit report each year, even though everyone is entitled to one free credit report every 12 months.
“When reviewing your credit report, it is really important to identify the red flags – two of these we refer to as ‘judgments’ and ‘defaults’, and both have a hugely negative impact on your credit score,” says Garnet Jensen, Senior Director, TransUnion Consumer South Africa.
A credit provider, such as a bank or retailer, can elect to list a consumer as defaulting on a credit commitment, if they have repeatedly not met the agreement terms. Typically defaults are listed for credit accounts overdue by 90 days or more. There are two types of defaults: an enforcement default where enforcement action is taken such as bad debt written off or handed over, credit card revoked or repossession of goods takes place; and subjective default which entails the classifications of consumer behaviour resulting from delinquency, slow payments, absconding or not being contactable.
In terms of the National Credit Act, a credit provider must give you 20 days’ written notice, warning you that your default will be reported to the credit bureau. A default stays on your credit report for 1 year, or until you bring the account up to date. Nearly 19% of credit active consumers have missed three or more instalments.
Another more serious course of action a credit provider can take, is to apply for a court judgment. A judgment is granted by the court when legal summons is issued and you fail to defend the summons or make payment of the amount claimed. A judgment remains on your credit record for 5 years or until it is paid in full or a rescission is granted by the courts.
Although not always the case, in general a consumer is listed as defaulting before a credit provider applies for a judgment. Credit providers tend to apply for a judgments when a consumer has fallen behind on their payments and has failed to respond to reminder letters. Or they have not stuck to a payment arrangement. If you receive a summons and don’t take any action to defend the summons, or contact the credit provider to make an arrangement, a judgment can be taken in your absence.
The reality is that a summons may come as a surprise - reminders may not have been received in the mail due to an address change for example. One of the best ways to keep on top of defaults and judgments against you, is to access your credit report regularly. TransUnion also offers a credit alerts service with some of it subscription products. This service will alert you via SMS or email should a new default or judgment be added to your credit report.
Defaults and judgments, if paid up, can be removed with the help of a credit bureau like TransUnion. Generally once paid up, these may be automatically removed. However, if you wish to expedite this process you can log a dispute with the credit bureau. You will need to submit the relevant documentation including the paid up letter, from the credit provider that listed you originally.
This dispute is then logged with the credit provider who made the negative listing, for verification. This process is legislated and takes 20 working days. Consumers are cautioned not to take chances with this process, as in the case where the dispute is found to be invalid, this is recorded on their credit report for a period of 12 months.
*Credit Bureau Monitor: 2nd Quarter, June and 3rd quarter, September 2018.
Consumers may visit TransUnion at www.transunion.co.za or call 0861 482 482 in order to obtain their credit report as well as log a dispute.