HOW TO IMPROVE YOUR CREDIT RECORD

Laura: [00:19] Hello and welcome to My Credit Status podcast. Today we are extremely privileged to have on our show Nicky Campbell as our guest. Nicky Campbell graduated from Rhodes University being awarded the Juta Prize for the best law student in South Africa. She completed a Master of Philosophy degree in Criminological Research at Trinity College, the University of Cambridge in the UK. Nicky is seen as one of the leading consumer law experts in South Africa, having written extensively on both the National Credit Act and the Consumer Protection Act. You can contact Nicky at www.legalrights.co.za or on 0116162665. Today we'll be discussing how to fix your credit report and improve your credit-worthiness. Welcome Nicky, and thank you for being on our show.

Nicky: [01:15] Thank you, Laura.

Laura: [01:16] Okay. Let's start off the very first podcast for My Credit Status with one of the many questions we have for you today. Nicky, can you briefly explain to our audience what exactly is a credit score and what is the impact of a negative credit score?

Nicky: [01:35] A credit score is literally an invention by the credit bureau. An invention in that each credit bureau computes its own credit score for a particular consumer using its own methodology. Factors such as the consumer’s payment history, how you've conducted your accounts in the past, how you’re currently conducting your accounts are factors that the credit bureaus use in computing the scores. Therefore, you'll seldom ever find a consumer with the same credit score, say from TransUnion from Experian. It's often divergent numbers. Hence when you often ask, “But my score is six hundred. What does this mean?” one often cannot answer that because it depends on what factors the credit bureau has computed. Because you may have a good credit score according to a particular credit bureau, but you may find you're still not getting credit because perhaps there's other negative information that hasn't been factored in that particular score. I always often advise a consumer: do not to focus too much on what your credit score is as in being a number because it varies from credit bureau to credit bureau. Rather, focus on the actual information that's contained in your credit report because that's typically what potential credit providers look at, is the actual information, factual information in the credit report. But you might be told your score's too low generally and that may be confusing, you know? But that’s often just a general response to say, “Look, there's some negative information on your report.”

Laura: [03:10] But I actually think, Nicky, that's a very important point that you mentioned. We all concentrate so extremely on the credit score, but actually, we neglect the actual negative information, as you mentioned, which can have an impact regardless of how high your score is.

Nicky: [03:26] Correct. Correct. Yes.

Laura: [03:28] That's very informative. Okay. Now, as a leading consumer law expert, can you briefly explain the types of negative information consumers encounter in their credit reports? For example, late payments, judgements, et cetera.

Nicky: [03:45] Okay. What we have is we've got different categories of information. The National Credit Act actually regulates the type of information that is reported on a consumer's profile. There are six categories of negative information. Let's start off with judgements. Judgements stay on your credit report for five years. After five years, they’re automatically removed, irrespective of whether you've paid up the judgment or the judgment is still outstanding. We call that the data retention period. Judgments, after five years, are deleted by the bureaus. If you want the judgment removed before the five year period, you can’t wait for its automatic removal, then you have to pay up the judgment. We saw the credit amnesty kick in 2016 which did away with the need to rescind paid-up judgment. What we had before the credit amnesty is that if you paid up your judgment and you wanted it off before the five-year automatic removal period, you had to instruct an attorney to rescind the judgment. Okay? The credit amnesty did away with that need presumably because it was simply too expensive or unnecessary for consumers. You know, you've paid up your judgment, now you must still apply to the court to rescind it. It's additional legal costs. But now if you've paid-up your judgment, you just need a paid-up letter to verify that the judgment’s paid-up and the credit bureaus are legally obliged to remove it within seven business days of receipt of that letter. So, amnesty made headway with the removal of negative information.

Laura: [05:18] Yes, that’s actually— Carry on.

Nicky: [05:22] Yeah. In addition to judgments, we've got default information, also known as adverse listings. Before the amnesty, this information would stay on for two years, if it was of enforcement action, or it could stand for one year if it was the subject of listing, i.e., handed over, et cetera. Now with the amnesty, if you pay up your account as listed as a default, the credit bureaus must remove it. Before the amnesty years, they would only update it to “paid in full” and you would still have to wait for the balance if it was one year or two years. So you'd have this default but it shows paid up in full, which didn't really work because some creditors would still say, “Look, you've defaulted in the past. Albeit, now that it's paid up, you’re still a credit risk.”

Laura: [06:07] Absolutely.

Nicky: [06:08] So today, with default information, it's getting removed once it’s paid up. You don't have to have this score following you. The fact that you’ve defaulted in the past is still showing. Now, obviously, it's removed. We also get payment profile information known as account information listing. This stays on your profile for up to five years. Typically, it's not necessarily negative information. If I have an account and I'm paying it well in the future, it's still on my credit report because the payment profile is showing my historical accounts and current accounts which basically show my credit exposure. So yes, I may have five accounts in my name and they’re all up-to-date and this reflects under my payment profile. The minute I default on a payment, I skipped this month, I have one late payment, et cetera, then what happens, I get a flag on that particular account in my payment profile. It will show sixty days in arrears. If I don't remedy that next month, it goes to sixty days in arrears.

[07:18] That can have a negative impact because say in three months’ time I settle my arrears, actually even pay-up that account. And I think while I've solved the problem, I’ve settled this account, but now the fact that I've been in arrears previously with this particular account can show for up to five years depending on the credit bureau. So that can be taken into account by some creditors. It depends on the creditors’ scoring methods when you're applying for your credit. Some creditors won’t factor that in. They’ll say, “Well, she defaulted previously, missed payments, but we see the account is paid up or we see the arrears are settled, we’ll extend credit because affordability is there.” But some creditors may say, “No. This historical information is taken into account and factored in.”

Laura: [08:08] I understand. So basically, at the end of the day, the consumer really has a responsibility to make sure that their accounts are up-to-date. Rather negotiate then a lower payment than actually missing out on payments and going into arrears status of like sixty or ninety days.

Nicky: [08:25] Yes. That’s preferred than just missing payments.

Laura: [08:29] Absolutely. The other question we get asked a lot is what can a consumer do if they receive a summons for payment on an overdue account?

Nicky: [08:40] Firstly, you should check if the debt that's been claimed is a valid debt. I say first check if it’s a valid debt, i.e., it has not prescribed. Because obviously accounts prescribed, we've got the defense of prescriptions. If you have not made any payments for a period of three years, the credit has not taken judgment, the account prescribed. So you may be receiving a summons, whether it's affixed to your door, whether it's the sheriff that serves it on you personally, but maybe the account has prescribed. Maybe you find, “I last paid this account four years ago.” So you could possibly have a defense. Yes, you haven't paid the account but you are not legally obliged to pay the account because there's been a lapse of three years. Because to write a prescription, it's got to be a period of three years you haven't paid the account. So obviously, it’s an intention to defend on the basis that it’s prescribed.

[09:35] If the account has not prescribed, i.e. you’ve paid it in the last two years, then the summons is valid because if you do know the account and it is an account you have, then what you could do is contact the attorneys that are listed on the summons because the summons will display the attorneys’ details. It’s pointless speaking to the sheriff, trying to arrange payments with the sheriff, or disputing the claim because the sheriff is just a messenger of the court. You have to obviously go back to the creditor or the creditors' attorneys. If you cannot negotiate a settlement amount, most creditors are amenable to a lump sum payment, even if it's a reduced payment, in settlement of the debt.

Laura: [10:17] But is it up to them though? Nicky, is it their choice though whether they grant you a settlement or not at their discretion?

Nicky: [10:26] Yes, it's at their discretion, Laura. They've got to decide. Sometimes, a creditor will look at it and (unclear 10:32) if it's a large amount. Obviously, the larger the debt that's been claimed, the more amenable they're likely to be to reduce the settlement amount. And given your circumstances, maybe you've just gotten unemployed and you've got savings in reserve. I've seen sometimes they’re retrenched and get a payout and they negotiate favorably with creditors with reduced settlements. Because if they put forward, “I've been retrenched. I can't afford this full settlement amount but I can give a lump sum payment of X amount.” The creditor is more likely to accept it given the circumstances. But as you said, Laura, it's at their discretion. They are not obliged to discount them out, but they may just.

Laura: [11:13] Okay. Well, that’s good to know.

Nicky: [11:17] So if you're receiving this summons check, “Is it valid?” If it is valid, try and negotiate a settlement amount. If you don't have a settlement amount ready, then try and enter into a payment arrangement. Even propose, “I'll sign an acknowledgment of debt.” If you stay legal process if you don't continue with the judgements. You don't want that judgement on your record, obviously. Once again, that’s also at their discretion, whether they're going to entertain your proposal but they may just, if it's a meaningful proposal for you, “X amount, we’ll accept payment of this amount,” and then you proceed to make the payment.

Laura: [11:51] And as long as you stick to those terms, they’ll be happy with that?

Nicky: [11:55] They should be, I mean if you've got it in writing. I always say get it in writing because if it's just a verbal agreement, you've got no proof. I’ve seen sometimes as I entered into a telephonic arrangement, I’ve got the summons. I phoned the attorney, I spoke to a female or I spoke to a male. I can’t recall the name. You don't have any proof. So if you get the summons, give them a call, find out who's handling this account. “Can I have the contact persons, email address, or fax number?” Detail any communications in writing. Just in case they proceed with judgment, later you want to reverse the judgment for whatever reason, you've got everything in writing.

Laura: [12:34] Absolutely makes sense. That’s actually very good advice on that one. Now, a very popular question, Nicky. Is it really possible to repair a negative credit score?

Nicky: [12:47] To a certain extent. I mean, let's keep in mind what we said at the start that a credit score is computed by each credit bureau. So the fact that you settle your judgments, you pay up your judgment if that's what’s on your profile, will improve that score with that particular credit bureau. It will improve your general creditworthiness. If you pay up the default that's listed, it will improve your credit-worthiness. You catch up on your arrears, yes, we've seen that it will leave a trail, the fact that you are in arrears previously with your current information. You settle arrears, it does improve your score. So yes, you can improve your credit score. Pay your accounts regularly, that's a start if you’re able to. And if you had the misfortune that at one point you couldn't pay your accounts regularly and you want to now remedy, yes, there are means. You'd need to start, obviously, contacting the creditors, negotiating repayments because all of that, once settled, will reflect positively on your credit report.

Laura: [13:47] Yes, I understand. I also think consumers, to a degree, should be also responsible in the sense of actually keeping up-to-date with their credit report and score and checking on a regular basis to see any changes, notifications. You know, the average consumer sees it as a once-off. Once a year, they'll apply for it and they'll leave it at that. But there are so many other variables that can happen in the process like ID theft, et cetera, et cetera.

Nicky: [14:15] Yes, it's good to monitor your credit reports regularly to see if anything is changing.

Laura: [14:21] Yes, that's correct. That's why we highly recommend the consumer who has had a problem, always busy trying to sort out their score, to actually get the credit reports on a regular basis.

Nicky: [14:33] Yes, that is advisable. Yes.

Laura: [14:36] Okay. Why can a consumer not obtain credit whilst under debt review? Sorry. My apologies. Why can a consumer not obtain credit whilst under debt review?

Nicky: [14:48] Once you apply to go under debt review, as soon as you've submitted that application, even before your debt review application is accepted because let's remember you can apply today but doesn't mean you’re technically under debt review because they must always assess your financial circumstances to see are you truly over-indebted. But as soon as you've submitted that application, the debt council is obliged to notify the credit bureaus because you are potentially over-indebted and that flag prevents you from getting credit. I mean, a creditor could definitely still extend credit to you. It's conceivable. But the creditor is likely to not extend credit because that could be seen as reckless credit.

Laura: [15:30] Yes, correct.

Nicky: [15:32] At a later stage you could allege, “Look, I'd applied for debt review. I was over-indebted.” Typically, you find in consumers under debt review do not get credit irrespective of the affordability.

Laura: [15:44] Yes, that makes sense actually. It would be irresponsible.

Nicky: [15:51] True. It would be irresponsible, possibly reckless.

Laura: [15:54] I agree. Now, can a debt review flag be removed from a consumer's credit report even if they have not paid up all their accounts?

Nicky: [16:05] Yes. It is possible. The first instance when it can be removed is when you are entitled to a clearance certificate. A clearance certificate is issued free of charge by the debt counselor. It’s issued when you've paid up all the accounts under debt review or you've paid up all your account but you still have a home loan that's outstanding. Obviously, that's the first prize because the debt counselor must issue this clearance certificate within seven business days of you paying up all your accounts and it's done at no cost to the consumer. Now, if you do not qualify for clearance— Sorry, Laura.

Laura: [16:39] No, no, no. Carry on.

Nicky: [16:42] If you do not qualify for a clearance certificate, then you'd have to do a court application to be declared not over-indebted or to rescind your debt review order. What we are seeing in our country is these court applications are being granted in most courts but we’re seeing some courts not granting it. We’re seeing some judges questioning the application. It's like anything in law, it depends—

Laura: [17:18] Okay. Now that I understand. That actually makes sense. Okay. What legal options are available to over-indebted consumers and consumers with poor credit scores?

Nicky: [17:33] Okay. Regarding options, I take it we’re referring to options to deal with the actual over-indebtedness and not necessarily to improve the credit report. Because obviously if you are over-indebted and you have a poor credit report, there is not much you can do to improve it. I mean, if you find companies that are saying, “We can improve your score without you having to service your debt,” it's likely to be a scam, to be frank. So if you're over-indebted and you've got a poor credit report, there's not much you can do from a legal perspective. But obviously, there are legal options to give you relief.

[18:13] You can possibly look at debt review as a solution. You shouldn't be looking to get credit. If I'm over-indebted and I have a poor credit report, obtaining more credit is possibly not in my best interest. I may want to get a debt consolidation loan. You’d think, “Maybe this will solve my problem because I've got too many accounts. Maybe if I consolidate my debt with one loan, this is the solution.” Yes, it could be a solution, but then, do have a look at the interest that's being charged by credit providers willing to grant you a consolidation loan given your poor credit report. You may find you're not solving your problem in the long term. Maybe short term you think, “Okay, now I've reduced the number of creditors. I’ve consolidated my debt. I only owe one credit provider as opposed to paying ten separate credit providers.” But maybe it comes with a price, (inaudible 19:05) interest rate. If it is a favorable interest rate, then perhaps debt consolidation could be an option, but it's not always the option.

Laura: [19:14] Exactly. Each situation is unique and as you said, they should actually look at the terms that have been offered. The interest rates.

Nicky: [19:23] Yes, because you may see it as a solution and then you find, “I've just signed up for a credit agreement with a much higher interest rate. I was better off paying my creditors, maybe negotiating reduced informal payment arrangement.” If you remember debt review is not always necessary. You can also approach your creditors, if they're willing, to propose reduced payments, present your financial circumstances. “This is my income. These are my essential monthly expenses. I can afford this amount.” You have an informal arrangement. I always prefer to encourage consumers to look at that informal arrangement because you can often achieve that arrangement with an attorney’s intervention not necessary, i.e. you're not paying an attorney for doing debt settlement negotiations. You're not paying a debt counselor for fees. You’re reaching agreements with your creditors informally where possible. That's the first option.

Laura: [20:17] Absolutely. That's very good, actually. Highly recommended. Okay. Now how long does negative information remain on a consumer's credit report?

Nicky: [20:28] Okay. The National Credit Act, we have a regulation, Regulation 17, that sets out the data retention periods. If I can give a quick summary because there are several categories of information, but judgments are automatically deleted after five years. Adverse information, after one year. Administration orders after five years. Before the credit amnesty and National Credit Amendment Act, admin orders used to stand for ten years. But we saw it change, they reduced that to five years. That was good for people under administration. Sequestration orders also used to stay on your report for ten years. But that changed recently; it's now five years. After five years, a sequestration order is automatically deleted. Payment profile, as I've discussed, will stay on as long as you have that account.

Laura: [21:23] Absolutely.

Nicky: [21:24] Negative information, if you miss payments on your accounts, that will stay on for twenty-four months to five years depending on the credit bureaus.

Laura: [21:34] Okay. Yes. Well, actually there's been a lot of changes in the last few years.

Nicky: [21:40] Yes. All in favor of the consumer to try and obviously give the consumer access to credit to prevent one having to seek assistance with credit repair. Obviously, creditors must still conduct assessments. Yeah, you're right. There's been a lot of changes to try and improve access to credit.

Laura: [22:02] Well, that's good to know. Now, when can a consumer legally refuse to pay an account?

Nicky: [22:11] You can legally refuse to pay an account if it's not a valid account. We touched on the consumer having to check the validity of an account when you’ve been summoned.

Laura: [22:20] Yes. That’s correct.

Nicky: [22:22] If it’s a valid account, et cetera. So basically, that's the biggest defense that we've seen in our law. The National Credit Amendment Act actually updated the National Credit Act to prohibit the collection of prescribed accounts. Before we had this amendment inserted into the National Credit Act, a creditor could collect on a prescribed account and if you didn't know the defense of prescription and you started making payments, you were deemed to have interrupted prescription and you were liable. But not because the collection of prescribed accounts is specifically prohibited. If you start paying as the layperson, you don't know your account is prescribed, et cetera, you haven't heard of prescription, but later you learn, “I shouldn't have paid the account because it had prescribed,” you can actually follow the defense of prescription. And what is interesting— I've seen some consumers with big major creditors, the Big Bang (inaudible 23:19) credit provider, where they started paying a prescribed account and maybe they came to us or they read up on prescription on the Internet and they realized it's prescribed and they raised that defense. And I've seen creditors refund to consumers the payments they've made because it's now unlawful to have collected upon it. Before we had this prohibition in the Prescription Acts.

Laura: [23:45] Wow, that’s interesting.

Nicky: [23:47] But now we actually have this codified in our National Credit Act. So, if it's a prohibition and you've collected as a credit provider, you've done something unlawful. We've seen, as a feat, some of the major banks refunding consumers where they collected on a prescribed account or a consumer paid. And they even give you a letter to say this account or debt is extinguished by the defense of prescription. That is the biggest defense available to the consumer to say you don't have to pay your account. Obviously, if you're over-indebted, you don't have to pay the accounts. You can be imprisoned for that. If you find out it's impossible to pay it, then obviously now you start looking at, “Is debt review an option? Is sequestration an option? What are my options that obviously are valid today?”

Laura: [24:39] Very interesting. To round-off our podcast, our last question is what can a consumer do if they cannot afford to pay their accounts?

Nicky: [24:52] If you cannot afford to pay your account, always consider the informal arrangements, negotiating informal arrangements with your creditors.

Laura: [24:59] First prize that will be, yeah?

Nicky: [25:01] That will be first prize because you're going to cut out all the other costs of engaging attorneys, engaging debt counsellors. Many creditors are amenable to informal negotiations if they're realistic. If the creditors refuse the proposed payments, then you may want to consider debt review. That may be an option. If debt review is not an option because let's remember with debt reviews, you've got to have a surplus after your monthly expenses are deducted, you’ve got to have a surplus that would enable you to make a meaningful monthly payment to your creditors. You can find debt review won’t work for some people because maybe you are so over-indebted that after your basic monthly living expenses are deducted from your monthly income, you find you've got a negligible amount left and creditors don't want to accept that under debt review, then maybe you even have to consider sequestration. That's the most extreme option, but it does give relief to those people who are so over-indebted and just want to “write-off” their debt. You've got to pay twenty cents in the rand, which is basically 20% of your total debt, but then you stand to lose possibly your home if you own a home, if you have a car and finance, you may lose the car. Sequestration is suitable for some over-indebted consumers, not for all.

Laura: [26:32] Very interesting, that actually. But what I realized, there are actually a lot of options for the consumer that is available to assist them in their various situations, whether it's to pay off debt, whether it’s to improve their credit score. And at the same time, besides getting your credit report, your company, it provides invaluable legal advice on this particular topic.

Nicky: [26:54] Yes. Well, we do advise consumers free of charge. Sometimes the consumer can't even afford legal fees, Laura. If we are going to try and assist somebody, you've got to make sure you're going to give meaningful assistance. Sometimes it is just giving literally counseling to somebody. If you can't afford to pay twenty cents in the rand your creditors over time, you can't afford debt review, then I often say to the consumer, “Then do nothing. Simply do nothing.” If you've got no assets registered in your name, you don't own a car—

Laura: [27:27] Anyway, we've rounded up all my questions for today and it's really, really been very informative. And once again, thank you, Nicky, for taking the time out of your busy day. You've really provided us with some valuable information that will definitely assist our consumers.

Nicky: [27:44] Thank you, Laura. Thanks for having the interview.

Laura: [27:47] I hope we can invite you back again and we can discuss further topics on credit reports.

Nicky: [27:54] Yes. Thanks, Laura.

Laura: [27:55] Thank you very much, Nicky. Bye.