The Effects of Bad Credit in South Africa

In 2012 Francois Venter, a director of Jawitz Properties, urged landlords to do credit checks on prospective tenants. A Forbes article on the effects of bad credit include relationships as a possible victim. A Women24 piece lists insurance as one of the modern conveniences more expensive for those with bad credit records, than those who’ve faithfully paid up on time.

South Africa has roughly 19 million credit active consumers, with about half of those suffering impaired credit records. The conclusion that life is more expensive and less enjoyable for those who’ve failed to keep up with their payments is not so far off the mark. Below we explore some of the effects of bad credit in South Africa.

1. Renting accommodation

According to Venter, in a Property24 article, landlords should do credit checks on prospective tenants to protect themselves. Sure enough, with 2014 predicted to be another trying year for the average consumer, landlords and their agents will run credit checks on applicants to ensure that the rent gets paid on time, every month. Even if the money is there, applicants with impaired credit records may have to settle for accommodation in areas where prospective tenants aren’t always credit checked.

2. Loans / Credit

The obvious one is lending, or, in financial terms, credit. Whether an account at a clothing store, a cell phone contract, financing for a new car, or a loan for a new living space, individuals with bad credit records will find it hard to obtain financial assistance through official channels. All legitimate credit institutions (and nowadays some of the more questionable ones, too) conduct credit checks on prospective lenders.

3. Employment

More and more employers are running background checks on applicants. In most cases these checks are limited to criminal record checks and CV verification, yet many employers find that doing a credit check gives valuable insight into the lives of applicants. While a credit check alone may not be used as a sole determinant of whether someone gets a job, it is often a contributing factor toward that decision.
After all, credit record not only reflects how well you’ve managed your finances in the past, but also tells a story of what you might do in the future.

4. Relationships

In a 2011 Forbes article , Lisa Peterson of Boston-based Lantern Financial said that the financial approach of each individual in a relationship may affect the relationship itself. “Risky versus debt-averse personality types that show up in credit scores may paint a pretty good picture of how each person will act in the marriage. It comes down to communication, but that can be really challenging if the personalities are so different.”

5. Insurance

“A good record, and thus a favourable credit reputation, will stand you in good stead when negotiating optimal interest rates with financial institutions, which will in turn save you lots of money,” said Gerrit van Heerde in a Women24 article . Insurance companies are one of these financial institutions, and are obliged to run credit checks on applicants to determine their risk categories. The higher the risk of an applicant, the more likely it is that the applicant will subject to higher interest rates, and therefore higher premiums.

What to do about a bad credit record

Two actions pave the road to credit recovery. The first is to run periodical credit checks on yourself; lenders sometimes neglect to update the credit records of their clients, even when accounts have been settled in full. It is your responsibility to ensure that your credit record is accurate and up to date. The second, if there are still debts to be paid, is to pay on time. Many lenders are more than willing to make payment arrangements with those clients who are unable to pay the full amount. Yet timely payment is crucial.