Use Credit Responsibly this Black Friday, Warns TransUnion

It’s been an incredibly tough year for many South Africans, and it’s important that consumers take careful stock of their finances before they start using credit for that ‘special’ bargain on Black Friday and Cyber Monday.

That’s the warning from TransUnion Africa CEO, Lee Naik, who says TransUnion’s research[1] into credit behaviour around 2019’s Black Friday showed that many people got caught up in the sales hype and struggled to meet their credit obligations in the months that followed.

“Our research showed that people were more likely to take out loans and increase their spending during the Black Friday period. There was a 13% increase in new accounts opened over this period over the previous month, as well as a 4.5% increase in credit card spending and a 5.2% increase in the use of retail revolving accounts.[2] The majority of this growth came from higher-risk loans: there was a 35% increase in retail instalment accounts opened—normally used for furniture and electronics—and a 23% increase in clothing, normally used for clothing and smaller household items,” said Naik.

Six months later, more than half of those new accounts were in arrears by one month or more – and the picture isn’t likely to be any better this year. According to TransUnion’s latest Financial Hardship Study[3], which measures the impact of the COVID-19 pandemic on South African consumers, 77% of South African consumers say their finances continue to be impacted by the pandemic. For these consumers, credit products are the bills most say they will not be able to pay. These include personal loans (36%), retail/clothing store accounts (35%) and credit cards (33%).

“Black Friday has always been a time of the year where we see greater levels of credit purchases. This year, the effects of ill-judged credit use on consumers who are already battling to meet their monthly obligations could be even more significant,” warned Naik. “Used responsibly, credit can help people afford items they might not otherwise be able to buy, but it is essential that consumers only spend what they can afford to repay.”

Before you apply for credit this Black Friday, it’s important that you have a full picture of your own ability to repay any existing and new debts. Here’s how to avoid the Black Friday blues and use credit responsibly:

Set a budget and stick to it

Don’t get carried away. Take an honest look at your existing finances and decide what you can afford. You need to look at how much you can afford to spend on a particular item and if you are purchasing it with the help of a credit product, what repayments you can afford to make after you’ve bought the item.

Complete a credit health check

Before you start dreaming of shopping carts full of bargains, take the time to know your own financial health. Do you know what you currently owe your lenders? Have you pulled your credit report recently to see whether you have debts you are unaware of? Do you have any defaults or judgements against you that need sorting out?

“The more you understand your current financial health, the more realistically you can set limits as to what you can afford. And if your credit score is low, rather stay away from credit now, and instead start rebuilding your credit health,” said Naik.

Go easy on the loan applications

There’s no problem with opening a new credit card, or taking out a revolving credit facility. But too many loan applications in a short space of time could be a big red flag to lenders that says you’re potentially in financial trouble. At the very least, you’ll be attracting attention the next time you ask a lender for credit.

“Every time you apply for credit, the lender will draw a credit report on you – something known in the trade as a ‘hard’ enquiry. Many people don’t realise that too many ‘hard enquiries’ in a short period of time to check your credit can negatively impact your credit score. Even things like applying for a new cellphone account and requesting a credit limit increase in a short period of time can affect you, so make sure they are absolutely necessary,” said Naik.

Read the fine print

Many credit agreements offer the option of credit insurance, which ensures your debt is paid if you are unable to continue payments due to job loss or illness. It’s also important to meet the minimum monthly repayments on any credit agreements you have – and if possible, it’s advisable to pay the debt off faster. Missed, or late, payments are the biggest factor that affects your credit score negatively.

Do your homework

Be very clear on what you want to get out of Black Friday and Cyber Monday. Prioritise according to what you really need: a washing machine may be more important than a new gaming console, for example. Then focus only on those important items.

“With bargains galore it can be easy to get drawn into the hype and make purchases you later regret. It’s also important to know what you’re prepared to pay and how you’re going to finance your purchases. Make a budget and stick to it. Check what the items normally cost and ensure you are really getting a good deal,” said Naik. “And remember, Black Friday and Cyber Monday are just the start of the festive retail season. There will be plenty of sales coming up. It’s better to walk away with nothing than end up with a mountain of debt you can’t afford to repay.”


[1]Based on analysis of TransUnion South Africa's credit database around Black Friday and Cyber Monday 2019, compared to the previous month

[2]Measured by outstanding balances / volume of transactions