Getting a loan is not so easy these days. The National Credit Act aims to protect consumers from living beyond their means by taking on debt they cannot afford. It is very embarrassing to have your loan rejected. Having a good credit rating is one of the most important favours you can do yourself.
 
So many things depend on your credit rating - your potential family home, the new car you want to buy, that own business you want to start, buying clothing and jewellery and getting a credit card. A good credit rating enables you to borrow more money at better interest rates. Why? Because the banks know that you are a responsible person. Many employers also look at credit reports as a way to judge a person’s responsibility.
 
Unfortunately it is quite easy to get a bad credit rating if you do not act responsibly with your debt repayments. It is clear that your credit rating will be affected negatively if you do not repay your debts. Merely being late with your payment will not necessarily have a negative effect immediately, but it is not recommended. However, if you are always late or you do not make a payment for several months, your credit rating will be affected, which could possibly hurt you in future.
 
The good news is that credit ratings, even bad ones, can be improved and fixed. Depending on the situation, with responsible credit usage and prompt payments, bad credit can turn into good credit over time. Remember, like with anything else in life, prevention is better than cure.
 
Below are 10 tips on how to ensure that you have a good rating when wanting to apply for a loan:
 
One
Know what your regular monthly payments repayments are and be sure to make them on time.
 
Two
Should you fall into arrears, get up to date as soon as possible and take care not to fall behind again.
 
Three
Don’t pay less than the minimum instalment each month, so be sure that you can afford the instalments before applying for credit.
 
Four
Draw up a monthly budget for yourself to determine whether or not you can afford the repayments. The trick is to stick to it and cut out unnecessary expenses if necessary.
 
Five
The average South African spends around 76% of his or her income on debt, which doesn’t leave much for anything else. You can reduce your debt by paying more than the minimum payment on your accounts. Do it one at a time and start with the most expensive debt (the one with the highest interest rate).
 
Six
Try to reduce the amount of money that goes towards debt repayments every month to between 30% and 50% of your taxable income.
 
Seven
If you are unable to make a payment due to unforeseen circumstances, talk to the creditor to make alternative arrangements. Any reasonable creditor may agree to accept reduced monthly payments, or spread them over a longer repayment period. It is best to pay something every month, if only to show your good will and establish a payment record in the event they decide to take legal action against you. If possible, get an arrangement in writing stating that they will not take legal action for the period of the repayment arrangement. Be aware that an arrangement like this with one creditor may be seen as an act of insolvency, but it could just give you the time you need to get up to date again.
 
Eight
All your efforts in paying off your debts will work only if you do not take on more debt. So when you are tempted to buy something, remind yourself that you are trying to pay off your accounts and that it will be worth it to be patient for a while.
 
Nine
It is important to note that points number 7 and 8 do not apply for a debt for which there is a judgement listed against you already.
 
Ten
As soon as collecting attorneys become involved, you will have to repay their legal fees over and above the original debt, which will obviously increase the cost substantially.
 
NB: Don’t ignore a letter of demand, since it is often followed by summons from a court. While it can be very tempting to ignore it and hope that it goes away, be sure that it will only get worse.
 
Based on an article by Homemakers Online.