South African consumers are becoming more cautious and prioritising paying off debt faster in the face of rising borrowing costs, according to a TransUnion’s report.
TransUnion is one of the four main credit bureaus in the country, with the others being Experian, Compuscan and XDS. Credit bureaus collect and use your information to create a credit score, which most lenders use as criteria for approving credit.
“TransUnion’s Consumer Pulse Study found that two out of three consumers (67%) have already cut back on discretionary spending, and the latest increase in borrowing costs will further erode their disposable income and their ability to pay their bills.
“Consumers with vehicle asset finance and home loans will be particularly hard hit, as these large repayments continue to grow,” says Kriben Reddy, the head of consumer education at TransUnion Africa.
Consumers were saddled with a higher-than-expected repo rate increase of 50 basis points in March. This increased the rate at which commercial banks can borrow money from the Reserve Bank and those increases were cascaded to hard-pressed consumers.
“Though higher interest rates often signal an increase in distressed borrowing, TransUnion’s Q4 2022 South Africa Industry Insights Report shows that consumers are becoming more cautious, with delinquencies improving year-on-year as they prioritise paying off debt faster in the face of rising borrowing costs,” says Reddy.
There are ways to use credit responsibly and it starts with knowing your limits.
“Only borrow what you can afford and maintain any payments. A wide range of financial products are included in your credit profile such as insurance contracts. This includes funeral polices, life cover and short-term insurance,” says Reddy.
Ways to improve your credit score:
- Manage your accounts: Pay your accounts in full every month. Partial payments can negatively impact your score.
- Limit your amount of debt: Keep your current credit facilities below 35% of your limit. If you qualify for a R10 000 loan, borrow R3 500 instead.
- Grow your credit history: Long-standing credit accounts that are consistently settled in full reflect positively on your repayment reliability.
- Limit your enquiry activity: Don’t shop around for too much credit at the same time. This could raise a red flag to lenders about your current financial situation.
- Do a credit health check: Go through your credit report frequently to see whether you have debts you are unaware of? Do you have any defaults or judgments against you that need sorting out?
- Read the fine print: Many credit agreements offer the option of credit insurance, which ensures your debt is paid if you can’t pay due to job loss or illness.
Generally, the higher the credit score, the better. A TransUnion Consumer Credit Score ranges from 0 to 999. Excellent: 767 – 999; Good: 681 – 766; Favourable: 614 – 680; Average: 583 – 613; Below average: 527 – 582; Unfavourable: 487 – 526 and Poor: 0 – 486.
Consumers are entitled to one free report a year from a credit bureau. The report reflects a 24-month view of account history, who has viewed your credit profile and for what purpose and judgments, defaults and notices.
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