Consumers who have decided to take a payment holiday may find themselves in a difficult position down the line when it comes to their credit records, says Ayanda Ndimande, business development manager of Retail Credit at Sanlam.
Ndimande said that many may be tempted to take the option of a payment holiday over this time, however, she warned that individual South Africans should be cautious with any debt relief they take.
“It’s wise to be wary and investigate all your options, especially as these could impact your credit score. If you take a payment holiday, you will still be charged interest on the balance of your loan, including your usual monthly fees.”
The best solution is to continue to pay your credit provider if you can, says Ndimande. Individuals need to explore their options, including their credit agreement, she said.
“Check your credit agreement to identify whether or not the product is covered by insurance that protects you from unforeseen circumstances such as death, permanent disability or loss of income.
“Approach your credit provider to find out whether you can lodge a claim against this insurance first. If not, only then should you request a payment holiday.”
Ndimande said that this will then be reflected at the credit bureau and the person will not be marked as falling into arrears. She stressed that the best option is to keep repaying your credit instalments.
“If you do have cash during this time, take advantage of the lower interest rate and keep paying the same amount as before – or even more – towards your debt,” Ndimande said.
Types of payment holidays and credit records
Annelene Dippenaar, chief legal and compliance officer at Experian Africa said that local banks typically allow for two types of holidays.
One is to delay the payment date of the next instalment, the other is to extend the terms of the agreement and pay back the loan over a longer period.
“If you meet your revised obligations under the payment holiday, it should not result in a buildup of missed payments on your credit report. Your credit score will not be affected negatively because your months in arrears will remain static until the time that the delayed amount becomes due and payable.”
Dippenaar said that payment status of your accounts is important, other factors are taken into account to calculate credit scores.
These include total unsecured debt – including credit cards and personal loans – and what your total use of your credit is.
“Unfortunately, there is no guarantee that it will not impact your ability to get credit in future. Lending policies differ between the various financial service providers, so this will depend on the lender with whom you apply for credit in the future,” she said.
“The intention of the payment holiday is, however, to allow the consumer’s profile to remain static during the period of the payment holiday and that the payment holiday data submitted to and held by the credit bureau will not be a “negative event” on your credit profile”.
Why credit records are important
Credit records are used by businesses and financial institutions when deciding whether to extend credit to a customer.
Although the decision whether or not to grant credit does not lie with the credit bureau which compiles the credit report, this report is used by credit providers – banks, retail stores, cellphone companies and so on – when a consumer applies for credit or to open an account, said TransUnion.
The credit provider uses the information in the credit report to score the applicant’s creditworthiness and decide, based on their own criteria, whether or not to grant the credit applied for, or whether to grant a lesser amount – and at what interest rate.
Regular examination of one’s credit report will enable consumers to check that all the information in it is accurate. Sometimes there could be errors or areas of dispute.
These disputes may have been no more serious that an error in name or address; but some could well have involved a far more serious issue such as inaccurate reflection of payments made.
A regular examination of one’s credit report could also provide timely warning to consumers that they might have been the victim of identity theft with the identity thieves running up enormous debt in their name.
Anyone who obtains their free credit report and has concerns about possible errors or discrepancies can contact the credit bureau that issued the report and lodge a dispute.
There are a number of ways to check your credit record. Some of the most popular options are outlined below: