I’m sure not a week goes by without you having to explain to learners why schooling is so important. It is vital that they do their best each term and achieve consistent results throughout the year because one bad result can affect a learner’s overall results.
Your credit record is very similar and it is important that you keep a good record for various reasons. Increasing financial pressure makes it easy for consumers to take up seemingly attractive credit offers. The danger, however, is that we fail to understand the long-term effect of such actions on our financial affairs because we are concerned only about instant satisfaction.
Credit records
Your credit record is based on numerous factors, such as your credit ”score”, payment history, court judgements, credit inquiries and any adverse listings you might have incurred. The higher your credit score, the more credit you qualify for. This could include a lower interest rate and favourable repayment terms because you appear to be a lower risk. Similarly, a poor credit score could mean that you qualify for less favourable credit terms or even that your credit application is declined. Clearly, you should always aim for a high score.
Warning signs
You are considered over-indebted if you have too much debt and cannot afford your monthly repayments or skip them. This is when you must take action to prevent the situation from getting worse as it will certainly affect your credit record.
Never ignore these signs: credit bureaus will record your apparent inability to meet your repayments. This ”blacklisting” makes it difficult to access credit in future.
Worse still, if you continue ignoring your creditors, you risk a court summons. If you fail to appear in court, a judgement is usually made against you – with severe damage to your credit record.
The best course of action is rather to explain your financial situation to creditors instead of waiting for them to act first. It shows responsibility and most reputable credit providers will assist you.
Consequences
A poor credit record means that you could find it hard, even impossible, to apply successfully for credit in future and it might have serious implications. For instance, if you needed funds to start a small business, your big plan could be derailed for a few years until your credit record is in order. You will also pay higher interest rates because you are considered a high risk.
Starting afresh
To improve your score or start building a better credit record, draw up a budget. This is an essential household tool and guides your monthly spending in a financially responsible manner. You might have to redo your budget a few times so the numbers add up, but do not be alarmed. This simple act is perfectly normal.
A budget will not solve financial problems or rectify your record immediately. It will, however, show you where you can save and force you to review your spending and focus on the necessities, instead of wasting money. This means that you will be less dependent on borrowed money and you might even have enough money soon to set aside for settling your debts – which should be your ultimate aim.
Remember, the sooner you settle any outstanding debts the sooner you will start rectifying your poor credit record. Maintaining a good credit record is not all that different to your learners achieving top marks as they work towards their final results – just be consistent.
For further information or advice, speak to a registered financial adviser or authorised financial services and credit provider.
Yolandé van Rensburg is head of corporate affairs and communication at Capitec Bank.