Building sound creditworthiness is vital in order to ensure South African youth have a good standing for the future – and address immediate challenges posed by the tougher economy where it is becoming increasingly difficult to make ends meet.
“We encourage youth to attain financial independence by spending responsibly while managing any accumulated debt well,” says Keith Wardell, Commercial Strategy Director at Experian South Africa.
South African youth – defined as those under 35 years of age and comprising of students, graduates and young professionals ranging from entry to mid-level – may find themselves in the position of taking on more debt as their disposable income or financial support from parents or guardians shrink. This is due to day-to-day and monthly expenses, such as food and transport costs, as well as accommodation rent, car repayments or student loans.
At the same time, with credit usage being unfamiliar territory for some, many fall for the misguided belief that the more credit they take on, the better their credit profile and the easier it becomes to apply for loans for major purchases.
“Young adults need to become more aware of their credit rights in order to make credit work for them. Credit is necessary for establishing one’s own creditworthiness – but only if the individual has assessed their ability to do so, are realistic about taking on debt and can afford to do so responsibly,” says Wardell.
These are some important tips that the youth should be aware of in order to build a good credit standing:
Make a point of paying bills on time – paying debt late not only accrues interest on bills – and increases your repayments – but can also be detrimental for your credit profile. This may put you in bad standing when needing to make big purchases on credit in the future. If you are unable to pay a bill on time, rather contact the bank or clothing store directly and make alternative payment arrangements. Leaving this indicates a stronger likelihood that you will make late payments again or be unable to repay debt in the future.
Review your credit report regularly and know your credit score – it is always a good idea to pull your credit report regularly to check for any errors – and ensure your financial health is in good shape. This is especially important before making big purchases as it gives you a view on whether you are in a good position to commit to payments. Keeping watch over your credit score is equally important for building your credit reputation. Credit scores are calculated on the basis of payment history, current levels of debt, type of credit accounts used, length of credit history and the number of credit enquiries. Knowing – and regularly checking these should be the minimum for maintaining your credit health.
Don’t take on debt to improve your credit rating – there is a common misperception that the more credit accounts one holds, the better their credit rating. This is quite the opposite if mismanaged. Debt should only be taken on if you are in a position to service this well and make repayments on time. It should never be taken on with the purpose of improving your credit rating – this could do more harm than good.
“Don’t allow the debt of your younger days to follow you in life. Managing a healthy credit profile and knowing your credit rights will go a long way in helping individuals ensure they are in a position especially for making those big purchases one day,” says Wardell.
Experian encourages the youth to access their credit reports this Youth Month. This is a free, annual service and available to all consumers as prescribed by the National Credit Act. Credit reports may be accessed online or via call centres where agents are trained to help individuals understand their credit reports and provide advice for resolving any inaccurate or negative information.