A good credit score can help build consumer wealth

The over indebted South African has been the star of recent news reports for all the wrong reasons. More than eight million individuals are three or more months behind with their debt repayments. While many individuals are fully aware of the consequences of not paying their bills, they may not understand the long term consequences when it pertains to their credit records.

“Most people see credit as a means to an end as it enables them to purchase something when their budgets are stretched, or alternatively, to fund a big ticket item that exceeds their cash flow,” says Geoff Miller, CEO of TransUnion. “What many people often overlook is the role of credit in building wealth. Credit used wisely, can help one grow assets - they can use it to buy a home, fund an education or take advantage of an opportunity. Unfortunately, individuals who damage their credit ratings by late or missed payments may cut off this opportunity.”

A credit bureau plays a substantial role in the facilitation of credit, as it provides potential lenders with a view of the consumer as a credit risk. The more negative information that appears on an individual’s report, the less likely they are to qualify for credit - even if they can afford it. Very few people realise that the way they pay their bills, affects their credit score. They may rationalise that a few days past the due date, or a month or two of missed payments is not going to make a big difference, but the reality is tardiness in paying bills can possibly stop one from receiving credit.

“It’s also important for individuals to understand that if an institution where money is borrowed from goes into liquidation - ceases to operate - borrowers are still obliged to settle their account or loan with them. If, for example, a borrower has a loan with a bank and it is bought out by another bank, or it is closed down, the administrators or liquidators will be entrusted with the collection process. If a borrower defaults on their payments, their credit record will be negatively affected. In other words, just because an organisation fails it does not mean that a borrower will be relieved of their obligations”.

If a borrower is unsure of their credit score, they can get a free copy of their credit report by logging onto www.transunion.co.za. This helps borrowers see how they look to potential creditors while also seeing there is any fraudulent activity or identity theft taking place. As identity theft is a growing problem in South Africa, borrowers should check their credit report at least once a year.

“The bottom line is borrowers who keep their credit record in good shape can be rewarded with access to credit at potentially low interest rates,” said Miller.