Credit Amnesty - what is your responsibility?

Last week Justmoney reported on Cabinet’s announcement that it intends to introduce a credit amnesty, which it will now put forward for public consultation.

As it currently stands, the amnesty will approve the removal of paid-up adverse and judgement information from the credit bureaus as a once off and thereafter as an on-going process. The amnesty could further apply to adverse or judgement information for which debt is still outstanding but there’s still no clarity on this.


So what does this mean for you if you’ve got debt outstanding or if you have paid up all your debts but still have a judgement against your name? Justmoney talks to Michelle Dickens, founder and managing director of registered credit bureau, TPN, and asks her the top questions on everyone’s minds:  


Do I still need to pay my debt?
Yes you do. “Consumers need to take heed; the amnesty applies to deleting adverse and judgment information on the credit bureau. What the amnesty does not mean is that the obligation to settle any unpaid debt falls away. On the contrary, you will still be held 100% liable for any monies still owed,” says Dickens.


Shall I do nothing if I have a judgement or adverse credit record?  
While you may feel the need to stick your head in the sand and hope that the government wipes your record clean no matter whether you’ve paid up your debt or not, you should take action now. “We still recommend responsible behaviour until the amnesty gets gazetted. This announcement means nothing until then. If you are going to be credit active in the future I would advise that you pay up your debts and take the necessary steps to get your record cleaned,” says Dickens.


Will the introduction of credit amnesty make it even harder to get credit from lenders in the future?
Unfortunately it will. The Banking Association of South Africa has already warned that banks are likely to increase the price of credit to take into account the increased risk of taking on people that may have had poor credit records in the past.


Dickens explains that lenders will scrutinise your credit profile a lot more as well before giving you credit. “They will look at your payment profile information on your credit profile and make an assessment based on how good you are at paying your creditors,” she says.


So if you are late in paying your Telkom account or have skipped a couple of payments on your Edgars account and this has been reflected on your credit profile, you will probably not be granted credit, and if you do, it will be at a higher rate.


How do I ensure that I keep a healthy credit record going forward?
1.    Make sure you know the difference between healthy credit and avoidable or expensive credit. “For example, taking out a loan for an appreciating asset, such as a house enables the consumer to buy now, pay off at a lower interest rate and enjoy the benefit of the value of the property increasing over time. In contrast, taking out a R100, 000 loan for an overseas holiday would be considered avoidable credit,” says Dickens.


2.    Understand the terms of your loan. “Different types of credit carry different sets of responsibilities. Lending is conducted in the form of secured, unsecured, short term and incidental credit. Each category has a maximum prescribed interest rate as set out by the National Credit Act. And these rates can differ vastly – from around 8.5% up to 60% per year. It is important that you’re aware of the rate applicable to your lending option before signing a credit agreement. Different lenders will charge different rates depending on individual cases, up to a maximum.”


3.    Find out what your minimum repayment amounts are and when they are due. “Late or short payments can have a serious consequence on your credit profile,” says Dickens.


4.    Don’t borrow up to the maximum that you are allowed to take on. “It is also important to take note of the fact that just because you qualify for a certain amount of credit, it does not mean you should take out that full amount. To a credit provider, the amount of credit access granted to you on your credit profile is important, not how much of it you actually use,” explains Dickens.


5.    Don’t think that interest rates will stay the same. Ask yourself what would happen if they were to rise. Would you still be able to afford your loans? “We’re experiencing the best possible interest rates at the moment, and they will only rise in the coming years. Make sure you’ve gotten to grips with your responsible credit behaviour now to avoid serious problems later,” adds Dickens.