It’s common to come across a lot of jargon on your credit report. Defaults, arrears, payment terms, judgments, obligations etc. How are you supposed to know whether the information is good or bad?
A good initial indicator would be theitself. The higher the credit score, the lower your risk to credit providers. However, there are some actions that can negatively affect your credit score. Things such as missing debt repayments or making frequent credit enquiries are considered negative credit behaviours and will be recorded in your credit report. Let's look at what they all mean and what to do if you have them on your report.
What is a default?
A default occurs when a person fails to fulfil monthly debt repayments on an account. The credit provider will report the default activity to the credit bureau. We say that the account is ‘in arrears’.
How long does a default stay on your credit report?
A default usually stays on your credit report until the arrears have been paid up. Once the account is back up to date and kept current the arrears will be removed. Usually, if the default remains unpaid the account goes further into arrears and the credit provider is likely to begin legal action. Legal action means that the credit provider will initiate their legal collection process. Ultimately, the case could go to court and end up as a judgment on the credit report.
What to do if you have a default?
Try to catch up on all missed payments/arrears to get the default status removed. This is done by paying over and above your normal monthly instalment. You can request a statement from the credit provider to see how much is outstanding and use it as a guide to create a payment plan to get rid of the arrears.
What is a judgment?
A judgment occurs when a credit provider has successfully taken legal action on an account. This is known as a bad-debt judgment. If there are several months of missed payments, the credit provider can take the matter to court, demanding that payment be mad. If the court rules in favour of the credit provider, the judgment will get added to your credit report, along with details such as the case number.
How long does a judgment stay on your credit report?
A judgment usually stays on your credit report for a period of 5 years. However, once the judgment has been paid up it can be removed from the consumer's credit report. Up until March 2019, judgments needed to be rescinded in order to get them removed from the credit report. A new ruling made it easier to get these removed by simply showing that that the judgment has been paid up, which includes the debt, the interest and any other fees due.
What to do if you have a judgment on your credit report?
You need to make sure that you stick to the agreed repayment issued by the court. If possible, try to pay a bit more to speed up the repayment of the judgment account. Once paid up, you should go to the court in which the judgment was issued, with a paid up letter, and ask to get it removed from your credit report. This can be done in the chambers of the court and doesn't require the credit provider to be present.
What is sequestration?
Sequestration is when someone is declared insolvent (unable to pay) by an insolvency practitioner. It is usually the final solution after other debt remedies have been explored, because your assets can be seized and sold to pay the various creditors . There are two types of sequestration. Voluntary sequestration is where you opt in voluntarily, and compulsory sequestration is brought about by a credit provider.
All credit providers will have to agree to the repayment terms in order to proceed with the process. This often means that creditors will have to be offered at least 20c-25c in the Rand of what is owed.
How long does the sequestration order last?
Sequestration usually lasts for about 5-10 years. A sequestration order will last on your credit report for a period of 5 years, or until the rehabilitation order is granted. The rehabilitation order will appear on the credit report for a further 5 years.
What to do if you have a judgment on your credit report?
You gets automatically rehabilitated after a period of 10 years after being sequestrated. An insolvent can, however, apply for rehabilitation before the 10 years has expired. Usually, a period of 4 years has to lapse in order to apply. There are certain requirements that need to be met in order to apply for rehabilitation, which include the insolvent having to prove that they are now able to provide for themselves.
What is debt administration?
Debt administration is one of the older debt management solutions in South Africa. Administration has specific criteria which limits its suitability to many over-indebted South Africans. The total debt that can be included under debt administration is limited to R50,000. This may seem like a lot but most over-indebted South Africans have much more debt than this. There is no specific repayment plan, which makes the process less attractive to credit providers. The solution is largely unregulated which means that it lacks the proper systems and processes. The fees are often more expensive than other solutions such as debt counselling.
How can I exit the debt administration process?
Debt administration is a legal court process. The process can be cancelled if "good cause" can be demonstrated. This includes proving that the debt administrator is not acting in your best interest or that you are no longer over-indebted. The order will also be removed if you have paid up all of your debt. You should check your credit report often
Many South Africans have never seen their credit reports. Many credit bureaus and companies, such as ClearScore, offer free credit reports for consumers. It's crucial to ensure that all information on your credit report is accurate. It should reflect reality as it is used every time you apply for loans, service agreements and even jobs.
See your credit score and report on.
If you notice any false or fraudulent information on your credit report you should contact the relevant credit provider, lawyer or bureau immediately to try and resolve it.