As many South Africans struggle to make ends meet and battle to keep their credit records in good shape, it's not surprising to consider debt review to solve a debt problem. But what exactly are the implications of the process on our credit records?
According to Sebastien Alexanderson, founder and debt counsellor at National Debt Advisors, one of the main determinants of whether your credit application will be approved or rejected is a credit record - undoubtedly the most important aspect of any credit transaction.
Alexanderson explains what a credit report is and the impact that debt review has on your credit record.
What is a credit report, and why is it important?
If you have ever taken up credit, whether a loan, a credit card, a furniture account, car finance, and a bond, you have probably heard about a credit report or a credit score. While your credit score is a consolidated rating of your creditworthiness, your credit report is the detailed, objective account of all your credit transactions that is used to determine the credit score.
Compiled by registered credit bureaux, your credit report is regarded as the unbiased measure of your financial responsibility and can be used for various life situations, from opening up a clothing account to buying a house and even applying for a new job.
What happens to your credit record when you go under debt review?
You are declared overindebted and flagged as a debt review client at the credit bureaux when you go under debt review. This prevents you from taking up any more credit as debt review aims to help you clear existing debt.
Once the debt review process is completed, a debt counsellor will issue a clearance certificate. This can be used to remove the debt review flag from your credit report update and have your credit score set back to zero.
How long does it take to get a debt review clearance certificate?
Debt counselling is a legal and regulated process, and therefore, like any other court case, it can only be officially closed through a legal process. After you have paid off all your debt and your debt counsellor has applied for and received your clearance certificate, they have seven days to submit it to the credit bureaux to clear your record.
The credit bureaus themselves also have seven days to remove the debt review flag from your record and update on their end that your debt review case is closed. The whole process, therefore, should take about 21 days to complete.
Life after debt review, the window period
Once you have completed your debt review programme, all the debt that has been paid via debt review should reflect "paid" on your report, and your credit score should be set back to zero. The only record showing on your credit report after your clearance certificate has been issued is your payment history which may remain on your report for up to two years.
This is why it is important to still monitor your credit report for the next six months after exiting debt review. If you see any settled payments show up, report them to the credit bureau immediately, says Alexanderson.
Re-entering the credit market: a beginner’s guide
Due to the devastating impact of over-indebtedness on our mental health, debt counselling often comes as a lifeline at a time when you need it the most. It’s like being saved from almost drowning and then given free swimming lessons to take with the whole experience.
This is one of the main advantages of going through the debt review process. As a debt review client, you emerge from the debt review process equipped with increased knowledge of the importance of healthy money habits like budgeting, saving, investing, and acquiring insurance. With these skills in place, you are now ready to start over and face the scary world of the credit market again.
However, before you dive into the deep end, remember that your credit record is now down to zero; therefore, you are still not ready for major credit purchases like a car or a house. So, if you want to acquire more credit, start slowly and monitor your credit movements and their impact on your credit report.
Questions may be edited for brevity and clarity.
- Have a money problem that needs solving? Fin24 can help! Send your question to firstname.lastname@example.org
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.