A great credit score depends mostly on the status of your debt as shown in your credit report. Getting your score to be “Good” or even “Excellent”, will require you to address any negatives debt statuses in your report. When reviewing your credit report, you should be on the lookout for the following debt red flags:
These have the greatest negative impact on your score and fixing them will go a long way to lifting your credit score. In the sections below, we explain what each of these mean, and what can potentially be done to fix them.
Dealing with your late payments
The payment profile section in your credit report, shows all credit accounts listed with the credit bureau including a 24 month payment history for each account. If you miss one or more payments on any of your accounts, this will be reflected as a late payment status for that particular month and that account. The late payment status will also show how late the payment was, ranging from 30 days through to 60, 90, 120 and even 150+ days. Unless this is factually incorrect, in which case this can be disputed with the credit bureau, there is not much that can be done for historically listed late payments.
If you are unable to meet your account payment obligations, and in order to avoid further late payment statuses on your report, it may be possible to enter into a payment arrangement with your respective credit providers. Should they agree, you will be required to agree and commit to an alternative payment arrangement. If you meet these new payment obligations your account history going forward will not reflect late payment statuses.
Dealing with your defaults
A default relates to a late payment or non-payment of an account, where a credit provider enforces their rights, by taking action against you because you missed payments over an average period of three to six months. The specific duration of missed payments may vary, depending on the creditor’s terms of agreement.
A default will remain on your credit report for a maximum of 1 year or until you bring the account up to date. Paid up defaults are removed once confirmation of paid up status is received from the credit provider. If you settle the total outstanding amount to a creditor you should see “fully paid consequent to listing” on your credit report and after two years, it will no longer be reflected in your report.
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. If you have not received notification, you can lodge a dispute with the credit bureau who is obliged to investigate this and remove the listing if it was incorrectly submitted.
Dealing with your notices
Notices include administration orders, provisional and final sequestration, and rehabilitation orders. Once you have become subject to any of these processes you will have to be formally rehabilitated before you can enter into legal agreements unassisted again. This will normally remain on your report for 5 years.
Dealing with judgments
When you fall behind with your account payments and fail to respond to reminder letters, or if you don’t stick to your payment arrangement, the credit provider can issue summons and obtain a judgment against you. Once you have a judgment listed in your credit report, any access to new credit will be denied outright. A judgment remains on your credit report for 5 years or until it is paid in full.
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. This is known as a default judgement. It is therefor important not to avoid your credit provider but to rather try and take proactive steps to make alternative arrangements.
Going under debt review
Debt review is a legal process that was introduced with the National Credit Act. It allows over-indebted consumers with a means to hang onto their assets and protect themselves from legal action by credit providers while they enter into a specific plan to settle their debts. The debt counsellor will liaise with creditors to renegotiate payments at lower interest rates and will draw up a manageable repayment plan, which will become a court order.
It might sound like the ideal solution to an unmanageable debt situation, however it’s important to realise that there are also downside implications to debt counselling. Firstly, it will cost you. Although the application fee for debt counselling is nominal, there is are fees that will be worked into your payment restructuring. Debt counsellors are under legal obligation to disclose the full cost of debt restructuring upfront. It’s important to shop around as not all debt counsellors fees are the same.
Importantly, it will also impact your credit rating. You will be listed at all credit bureaus as being under debt review, and you will not be able to access any form of additional credit until you have paid up your restructured debt and are issued with a clearance certificate.
It’s also vital to ensure that the debt counsellor you choose is registered with the National Credit Regulator. If you choose an unregistered counsellor you may not be protected by law. To find a registered debt counsellor and learn more about the debt review process visit the National Credit Regulator website.
The best approach to a great credit score, is well managed debt. However if you find yourself, falling behind on your payments, it is key to address the problem sooner, rather than later. Avoiding credit providers is the worst approach. In general, the longer the debt is outstanding the more severe the impact to your credit score and the harder it gets to fix the problem. Therefore the key to managing and settling your debt is firstly knowing and understanding your status as reflected in your credit report, talking to the credit providers where you have any of the debt red flags, and making and sticking to a plan to fix these issues.