Empower youth with solid credit management skills

While many parents believe a formal education and good health care are the foundation for any child’s bright future, that doesn’t go far enough. Young people also need to be empowered with solid financial management skills. TransUnion points out that very few people in today’s world will not 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 pay for their tertiary education. Young people need to be educated to achieve this. They need to learn from an early age how to prioritize their spending, and manage credit so as to make it work effectively for them, rather than plunge them into a debt trap. While at primary school, children should be encouraged to manage pocket money. Should they ask for an advance or a ‘loan’, parents should help them to work out a reasonable ‘repayment’ plan, and then ensure they stick to it. This will help to encourage the all-important habit of paying the correct amount owing on their accounts on time, every time – a trait that will be absolutely essential when they grow up and need to maintain a good credit profile. As soon as a child is old enough – and certainly once he or she turns 18 - they should be encouraged to start building a good credit profile. Most credit providers – banks, stores – check an applicant’s credit report before deciding whether or not to give them the credit they want. Without a solid credit profile that reflects good credit behaviour, a provider may not grant credit, or may limit the applicant to a far lower amount than required on less favorable conditions such as a higher interest rate. Therefore, the sooner one starts building a good credit profile, the better. However, TransUnion cautions young people not to go out and collect as much credit as they can – particularly if they are not going to be able to repay it as set out in the credit agreement. Young people should therefore apply for credit carefully, and use it wisely. TransUnion suggests young people do the following in order to start to build a healthy credit profile:

  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 your credit report.

Once you are credit-active, obtain your free TransUnion credit report from www.transunion.co.za. or call us 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.