THE NEGATIVE IMPACT OF BLACKLISTING IN SOUTH AFRICA:
The term “blacklisted” is used to describe individuals who have not honored their credit agreements between themselves and credit providers. This refers to long and short terms debt which may be in the form of credit cards, store cards and loans. The information relating to an individual’s credit record is captured by the Credit Bureaus.
WHO ARE THE CREDIT BUREAUS AND THE ROLE?
The information pertaining to your credit record is obtained from Credit Bureaus who are agencies that collect and research individuals’ credit information and then sell it to creditors for a fee.
All credit bureaus are regulated by the National Credit Regulator, in accordance with the National Credit Act, 34 of 2005. The function of the Credit Bureaus is to provide creditors with information relating to an individual’s credit record prior to approving a credit application made by the individual.
WHAT IS A CREDIT SCORE
A credit score is a figure which is calculated with the use of the data contained in each person’s credit report. If an individual has a higher credit score the chances of having a credit application (e.g. loan, bond, credit card etc.) approved are more likely. Should an individual have a lower score the possibility an application being rejected increases.
The Credit Bureaus have a legal obligation to retain credit information for a specified period of time. The below mentioned are the primary listings which a Credit Bureau can make with regards to your negative credit record:
- Default Listings
In the event that an individual has failed to make payment to a creditor or has not responded to letter demanding payment then such default data is listed on the debtor’s profile. Such listing remains on the debtor’s profile for a period of two years. Default listings are only removed once the debt has been settled.
- Civil Judgement
A creditor may institute legal proceedings against a debtor. The legal proceedings are initiated by way of Summons which is issued by the Court and served on the debtor. The Summons will provide the debtor with notice to appear in court on a particular date, in the event that the debtor is absent judgment is granted by the court in favour of the creditor. The judgment is then noted on the debtor’s credit profile for a period of 5 years or until it is rescinded.
- Administration Order
A debtor may make an application for an administration order to avoid legal action being instituted by creditors. Such listing will reflect on the debtor’s profile for a period of 5 years.
- Sequestration Order
A debtor (or a creditor) may make an application to the court requesting that a sequestration order be granted declaring the debtor insolvent. In the event that an individual is declared insolvent a curator is appointed to manage the individual’s finance. A sequestration order will reflect for 5 years or until a rehabilitation order is granted.
- Debt Review
A debtor who is under the impression that they can no longer meet all financial (credit) obligations may be placed under debit review and make use of a Debt Counsellor to negotiate the terms of the credit agreement with the credit providers. This listing will stay on the creditor’s profile until a clearance certificate has been issued
THE CONSEQUENCES OF BEING BLACKLISTED:
- Non approval of credit
Prior to approving credit applications creditors will scrutinize your credit history in order to establish whether you are eligible for the applied credit.
One of the most important factors in a credit application is the applicant’s credit score which is based on their credit history. This can be either positive if an individual made timeous payments in the past or negative if payments were missed or even abandoned.
Credit Applicants who have a favourable credit record are more likely to receive better terms and interests’ rates on their credit agreement. In the event that the applicant has a negative credit record such applicant, in most cases, will not receive the sought credit or receive it at a higher interest rate.
- Default Judgement
In the event that an individual does not abide by the terms stipulated in the credit agreement the creditor has the right to institute legal proceedings against a debtor. Once a creditor has obtained civil judgement against an individual the order may be executed, and movable or immovable property can be attached (repossessed) in order to fulfil the orders granted in the default judgement.
- Limitation of Employment Consideration
Most employers today will check a candidate’s credit score before hiring them as it will show the potential employer whether the candidate is honest and trustworthy. In the event that an individual wishes to apply for employment through a recruitment agency it is highly likely they will also request to obtain the candidate’s credit record. In many cases employers are reluctant to employ an individual with a bad credit record.
- The inability to have financial freedom
In the event that an individual chooses an administrative order, being placed under debit review or sequestration they lose the freedom to handle their finances. A third party may even be appointed to deal with your finances which results in relinquishing your financial freedom to make choices relation to your own finances.
REMOVING A NEGATIVE LISTING FROM YOUR CREDIT REPORT
The credit bureaus must legally retain certain credit information for a specific period. New regulations now make it possible to remove adverse information when settling the debt. Once a debtor has paid a debt in full, the creditor has 7 days to inform the credit bureaus. The bureau will then have a further 7 days to remove the information. Such process is not always simple and may affect the debtor long term and have negative impact on credit applications.
The process of having your name cleared is extremely tedious and frustrating.
HOW TO AVOID BEING BLACKLISTED:
- Make sure you make payments on time
Prior to concluding a credit agreement ensure that you have the financial means to meet the payment obligations stipulated in the credit agreement to avoid making late or no payment at all. Late and missed payments have a very negative impact on an individual’s credit record. The creditor also has the right to add interest for non or delayed payment which will subsequently increase the principal amount to be paid back. In order to make timeous payment it is advisable to put a debit order on your account so that payments can be made from directly your bank account to the credit provider.
- Limit how often you apply for new credit accounts
Every credit application is listed on your credit record which may have a negative impact on your credit profile when applying for new credit.
With the dismal financial state many South Africa’s find themselves in, having your name listed by the Credit Bureaus can have an adverse effect in finding employment, obtaining home finance and any other additional credit. It is thus important to ensure that you clearly understand the provisions of the credit agreement prior to committing. Once you have entered into a credit agreement you need to ensure that you make timeous payment of the amounts due. In the event that you can no longer meet those obligations, you need to inform your credit providers and negotiate new terms to the agreement. In the event that the credit providers institute legal proceedings the best thing to do at this stage is to seek legal advice from an attorney and not to ignore it as this will result in more problems. Transparency and honesty is the only preventative measure to secure a clear credit score.