What you need to know when applying for credit

When you want to apply for credit to buy a house, furniture, clothing, a car or take out an overdraft, credit card or personal loan,the credit granter must, by law, ensure that you understand the terms and risks of taking credit and that you can afford to pay back the amount over an agreed period of time. If they do not do this a Court may set aside the agreement or postpone repayments if they find that the credit provider was reckless.

To determine whether you qualify to get credit,  the credit granter will need to assess your income and expenses, including how much you are paying towards debt. Thereafter they will contact the credit bureau to verify your debts, repayment behaviour and if you have any adverse listings like judgments. If you are under Debt Counseling or Administration you are not allowed to apply for or be granted credit except for a consolidation loan if you are under debt counseling.

If you are declined credit you have the right to ask for written reasons and if it is because of credit bureau listing you have the right to be provided with the contact detais of the credit bureau. It is possible to improve your credit score to qualify for credit. The ICS can assist you with this process.

Before and after applying for credit consider the following:

  • Conduct your own affordability. Do not rely on the affordability assessments of your credit providers. Do your own assessment of ask the ICS to assist you with one. This will prevent you from accepting offers of more credit and overcommitting yourself.
  • Understand the terms of a loan. The principal amount is the amount that you have borrowed and on which you will pay interest. Shop around for the best interest rate and understand how much you will be paying back in interest each month and for how long. Also look for hidden costs, such as initiation fees, service and administration fees.
  • Look at your debt holistically. Credit and store cards also count as debt. Consolidating your debt is one way to reduce extra costs such as service fees and pay off your debt more quickly.
  • Never take on new debt to pay off existing debt. This is one way to get yourself stuck in a debt trap.
  • Pay your debts on time. Not only will you end up paying more in interest rates and penalties, but paying late could affect future borrowings. Call your credit provider as soon as you think you will fall behind in your repayments and they may be able to help you restructure your repayments.
  • Speak out. If you’re having difficulty making your monthly payments, contact your credit providers or a debt counsellor as soon as possible. Don’t try to deal with your financial issues in secret or by denying the problem, make your family aware of your situation so that they can help too.
  • Check your personal information at credit bureaux regularly. Don’t leave it until you apply for credit or a new job to find out that the information held by a credit bureau is incorrect. You have the right to challenge any incorrect information. Under the NCA a credit bureau must provide you with one free copy of your credit report each year. You can access additional copies for R20.