The Long Walk To Credit Freedom

One of the most frightening things about unmanaged debt is how quickly it can spiral out of control.

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A good education is the golden key to a bright future for any child – an education that not only equips the child with employable skills, but also one that empowers the child with the knowledge required to break out of the cycle of poverty into which so many are born. That’s the view of TransUnion, South Africa’s largest credit bureau who points out that without solid financial management skills, many young South Africans will spend their lives mired in debt.
 
The latest quarterly TransUnion Credit Index (CCI), published last month (May), revealed that there were household cashflow actually weakened by 1% in Q1, due to slow income growth and increased cost of living. TransUnion data shows that credit card and store card credit increased by just 2.5% y/y in Q1 2017, less than disposable income which rose by around 4% over the same period. This indicates that many people continue to face challenging financial time ahead, which can impact negatively on every facet of their lives.
 
When we talk about empowering our children we should not forget about the value of empowering them with financial health skills. Equipping young people with financial health skills includes teaching them how to prioritise their spending and – importantly – how to manage debt.
 
Very few people in today’s world don’t require credit at some point in their lives – to purchase a house or a car, have the convenience (and security) of a credit card or a store account; or even to take out a cellphone contract. Parents need to educate and empower their children to achieve this.
 
Acquiring credit can become a bit of a chicken and egg situation. Most credit providers – banks, stores and service providers – check an applicant’s credit report before deciding whether or not to give them the credit they want. Without a solid credit record, a provider may not grant credit at all, or may limit the applicant to a far lower amount than is needed.
One of the best lessons for any child would be how to build a good credit record. It’s not really that difficult to do: as soon as a child is old enough – and certainly once the child turns 18 - they should be encouraged to start building a good credit record by, for example, opening a basic store account with a very low credit limit. Then they should ensure they manage that account meticulously – paying back the full instalment owing on time every month.
 
This good credit behaviour will reflect positively on their credit report, making it easier for them to obtain the credit they need later in life for bigger purchases, such as a house or a car.
 
However, if they don’t manage their accounts as set out in the credit agreement because their credit report will reflect all the accounts that they pay in full and on-time, as well as any late payments or skipped payments, this will could against them. They should therefore avoid going out and amassing as much credit as they can – particularly if they are not going to be able to repay it.
 
TransUnion suggests young people do the following in order to start to building their credit record:
 
1.         Apply for a store card with a low credit limit.
2.         Always try to keep the balance on the card below 35 percent of the limit.
3.         Ensure the correct amount owing is paid on time and in full every month – don’t skip a month with the intention of making up the shortfall next month. Even this will reflect negatively on one’s Credit Report.
4.         Having become credit-active, obtain your Free Credit Report from www.transunion.co.za or phone the TransUnion call centre on 0861 482 482 and ask for it.
 
This is to ensure your report reflects your payment history and behaviour accurately. Every consumer is entitled to one free credit report from each of the credit bureaus, once every 12 months.

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