Understanding and Managing Credit Defaults and Judgments

Introduction 

Your credit score is more than a number; it's a reflection of your financial health and key to unlocking credit-based opportunities like financing a car or house, or even securing a job in some industries. But, what happens if you can’t make your repayments and face legal action?

This blog aims to make defaults and judgments understandable while providing actionable insights and strategies to help you avoid— or manage your way out of — these financial pitfalls.

Defaults and judgments 

A default occurs and is recorded on your credit report when you have missed three consecutive payments on a payment obligation. A judgment is a legal ruling that occurs when a creditor or service provider acts against a borrower for unpaid debts.

While defaults can remain on a credit report for one year and judgments up to five years in South Africa, their real-life implications are far reaching. They can delay or prevent homeownership, hinder business opportunities, result in asset seizure and even affect employment prospects.

Begin the conversation 

Engaging with creditors at the earliest sign of financial difficulty is essential. Open and honest communication can lead to negotiated terms, payment plans or temporary relief. Formalising any new arrangements in writing is advisable to ensure clarity.

Take legal advice 

Understanding the options available to you is vital. If you're facing legal action, you should act promptly and seek professional legal advice. There are mechanisms such as debt review available to you and you can also find support through organisations such as Legal Aid or community law centres.

Plan your finances 

Effective budgeting and financial planning are the best way to avoid defaults and judgments. Using budgeting tools and building an emergency fund can provide some stability during financially challenging times.

Support services 

If debt becomes unmanageable, consider professional registered debt counselling services regulated by the National Credit Regulator (NCR). Community organisations and NGOs also offer financial management assistance and consumer protection.

Monitor your credit 

Regularly check your credit report to find potential issues early. You can get one free credit report per year from a credit bureau such as TransUnion. Subscribing to our credit monitoring services with real-time alerts also helps you stay constantly informed and in control of your credit score.

Recover and rebuild Rebuilding credit confidence after defaults or judgments requires strategic planning and consistent effort. This gradual process includes establishing a record of responsible credit use, only applying for credit you can manage and making regular repayments on time. Automating your payments can help.

Consolidating debt 

Exploring debt consolidation options and speaking to registered debt counsellors can help you develop a more structured path to manage and minimise debts. Professional guidance can lead to negotiated terms with creditors, possibly at reduced interest rates.

Financial education and support 

Taking part in financial literacy programmes can enhance understanding and increase your motivation to better manage your debt and work to remove defaults and judgments. Again, TransUnion has tools that can help with this.

One step at a time 

By sticking to these strategies and leveraging available resources, you can restore your credit confidence and reposition yourself for future financial opportunities. Whether you're just starting your financial journey or looking to recover from past mistakes, the insights and strategies shared in this blog can help you recover, rebuild and reengage your credit confidence.

Remember, you're not alone. Your financial well-being is not just a destination; it's a journey, and TransUnion South Africa is here to support you along the way.

Additional Resources

TransUnion South Africa: Visit the official website for robust credit information, tools and services tailored to South African consumers.

Free Annual Credit Report: Access your free annual credit report to monitor your credit status and detect any potential issues early.

National Credit Regulator (NCR): Regulates the South African credit industry, ensuring fair and transparent credit practices.

Legal Aid South Africa: Provides legal representation and related services to those who cannot afford it, ensuring access to justice for all South Africans.

By leveraging these resources and staying committed to your financial goals, you can navigate the complexities of credit with confidence and resilience.