The Vices and Virtues of Having a Credit Record

Out of 22.12 million credit-active consumers in South Africa, 9.95 million of these have credit impaired records, which means they are in 3 or more months of arrears, according to the National Credit Regulator’s June 2014 Credit Bureau Monitor.

Considering the overwhelming number of indebted credit users, it may seem like a good idea to avoid the credit market altogether, if you or your loved ones have not yet entered the big, bad world of formal borrowing.

Then there is that vague, ominous condition credit users’ call getting ‘blacklisted’ at the credit bureaus which, by the sound of it, is an affliction one should steer clear of at all costs.

The truth about the loathed and feared ‘Blacklist’ is quite plainly that it doesn’t exist. When you open up an account, or take out credit, loans or finance, the credit bureaus simply list your repayment behaviours on your credit record or profile, which will then reflect in your credit report.

Clearly, the notion of ‘blacklisting’ is misleading, as both good and bad money habits are unbiasedly recorded by the bureaus. Good behaviour referring to servicing your debts in a timely manner, paying the right instalment amounts into the correct accounts, along with the stipulated interest rates etc. And bad behaviour being that of falling into arrears, or getting defaults or court judgments against your name.

In this way, when you apply for credit, given your consent, credit providers can access this good and bad information to assess whether you are a high or low risk client, depending on your past financial behaviour or credit history.

Thus, it reasonably follows that a lender would be prone to declining your credit application, if your credit report shows that you are currently indebted, routinely fall in and out of arrears, or that you have a tendency to skip, fall short on, or make late payments.

As a rule, you’re likely to be charged higher interest rates as a chronic defaulter. Just as your creditor will be more inclined to unhesitatingly grant you credit, at much better interest rates, if your report shows you to be a consistent and punctual payer.

On the other hand, not having a credit history at all means you will be precluded from accessing credit and, accordingly, shut out of the credit market and denied opportunities to improve your quality of life, become fulfilled or attain success.

Conversely, by remaining a ‘credit invisible’ individual, you are undermining your freedom of choice and restricting your options, such as becoming a homeowner, driving a reliable car, renting a well-appointed apartment, taking out insurance on your valuables, obtaining a credit card for unexpected emergencies, or even applying for a student loan to enhance your education, and broaden your horizons.

Predictably, the illegal or informal alternative is markedly more expensive, as without the National Credit Regulator to curb excessive interest rates on shady unsecured loans, steep charges go unchecked. What’s more, in an off-the-record lending market, you won’t have the protection of the debt counselling process or the National Credit Act, to enforce your consumer rights.

Moreover, making use of unregulated credit rapidly escalates into an unruly debt cycle that’s impossible to break, as it’s often ruled by unsavoury methods, including coercion, harassment, manipulation and violence.

As a final point, responsible use of mainstream credit is evidently preferable to locking oneself out in the cold, where poverty, intimidation and mobocracy are the order of the day.