What is Credit?
Credit is the ability to borrow money or access goods or services with the promise to pay later. It’s a tool that allows consumers to make purchases they may not be able to afford right away and pay for them over time, usually with interest.
In South Africa, credit is commonly used for:
Credit cards: To make purchases and pay for them later. Loans: Personal loans, home loans, or car loans. Store credit: Credit from retailers, like clothing stores or furniture shops. Why is Credit Important in South Africa?
Credit is essential for several reasons:
1. Access to Finance: It helps you make large purchases, such as buying a car or a house, that would otherwise be out of reach.
2. Building a Financial History: A good credit record can make it easier to borrow in the future, get better interest rates, or even secure jobs where creditworthiness is a factor.
3. Emergencies: Credit can be a lifeline in emergencies when you need cash immediately but don’t have it.
Key Components of the South African Credit System
Credit Report:
A credit report is a detailed record of your credit history, including loans, credit cards, and payment behavior. It shows lenders how you’ve managed credit in the past.
Example: If you’ve consistently paid off your credit card bills on time, your credit report will reflect a positive history, making it easier to get credit in the future.
Credit Score:
Your credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 850. The higher your score, the more likely you are to get approved for credit at favorable terms.
Example: If your credit score is 750, lenders will see you as a low-risk borrower, and you may qualify for lower interest rates. If your score is 500, lenders may see you as a high-risk borrower, and you may face higher interest rates or be denied credit altogether.
Credit Bureau:
Your credit history is collected and stored by credit bureaus in South Africa. Major South African credit bureaus include TransUnion, Experian, and Compuscan.
Example: If you apply for a loan, the lender will check your credit report from one of these bureaus to assess your creditworthiness.
Debt-to-Income Ratio:
This is a measure of how much debt you have compared to your income. It helps lenders assess whether you can afford to take on more debt.
Example: If your monthly income is R10,000 and your debt repayments are R4,000, your debt-to-income ratio is 40%. Lenders may hesitate to lend to you if your ratio is too high. How the Credit System Affects Your Life
Interest Rates:
Your credit score directly impacts the interest rates you’ll pay on loans and credit cards. The better your credit score, the lower the interest rate, which means you’ll pay less in the long run.
Example: If you take out a R100,000 home loan and have a low credit score, you might be offered an interest rate of 10%. If you have a good credit score, you could get a rate of 7%, which will save you thousands of rand over the loan’s lifetime.
Loan Approvals:
A strong credit history makes it easier to get approved for loans and credit cards. Lenders will be more confident in your ability to repay.
Example: If you apply for a car loan, your bank will review your credit history. If you’ve been responsible with debt, you’re more likely to get approval and better terms.
Insurance Premiums:
Your credit score can also impact your insurance premiums. Insurance companies may charge higher premiums to those with lower credit scores, as they consider them higher risk.
Example: If you have a poor credit score, you may find that your car or home insurance premiums are higher than those of someone with a better score.
How to Build a Good Credit History
Building a good credit history takes time, but it’s essential for your financial well-being. Here are some tips to help you improve your credit:
Pay Your Bills on Time: Late payments can negatively impact your credit score. Set up automatic payments for bills like credit cards, loans, and utilities to ensure you never miss a payment.
Tip: Even if you can only make partial payments, try to make them on time. This will show lenders that you’re responsible.
Use Credit Wisely: Avoid using your credit cards to their limits. Lenders like to see that you’re using credit responsibly, which means not using more than 30% of your credit limit.
Example: If your credit card has a R10,000 limit, try not to carry more than R3,000 in debt at any given time.
Check Your Credit Report Regularly: In South Africa, you’re entitled to a free credit report once a year from each of the major credit bureaus. Regularly checking your report helps you catch errors and identify potential fraud.
Tip: If you find any mistakes on your report, contact the credit bureau to have them corrected.
Limit New Credit Applications: Every time you apply for credit, it’s recorded as a "hard inquiry" on your report. Frequent applications in a short period can impact your credit score.
Tip: Only apply for credit when necessary. Instead, focus on building your existing credit.
Pay Off Debt: If you have existing debt, work on paying it off. Try the debt snowball method (paying off the smallest debt first) or debt avalanche method (paying off the highest-interest debt first) to reduce your overall debt load.
Common Credit Problems in South Africa
Debt Stress: Many South Africans struggle with excessive debt, especially from payday loans, credit cards, or store cards. The high-interest rates on some loans can make it hard to get ahead.
Solution: Seek professional help from a debt counsellor who can help you restructure your payments or negotiate with creditors.
Over-Reliance on Credit: Using credit to fund daily expenses or lifestyle habits can lead to long-term financial trouble. Over-relying on credit cards and loans can spiral into debt.
Solution: Create a budget that keeps account of all your monthly expenses and try to reduce reliance on credit for non-essential purchases.
Identity Theft: In South Africa, identity theft is a growing concern, and it can severely impact your credit score if fraudsters take out loans or open credit accounts in your name.
Solution: Be vigilant about protecting your personal information. Keep an eye on your credit report and report anything suspicious immediately.
Understanding the South African credit system is key to managing your finances and securing your financial future. Keep track of your credit score, use credit responsibly, and make payments on time to build a strong credit history. Remember, credit can be a powerful tool, but it requires careful management to avoid the risks of debt. Start early, stay disciplined, and take charge of your financial well-being.
Questions after the interview:
At the end of an interview there is usually an opportunity where you can ask any questions you might have. This is a great opportunity to show the interviewer that you are interested in the position as well as the company. It is a good idea to prepare a few questions before the interview – this can be done while you are doing research on the company.
Your questions should show the interviewer that you are a good candidate for the position. Try and avoid questions that are based on your personal needs and preferences, for instance:
- How much leave will I get in a year?
- Will I be considered for promotion in my first year?
- When will I get an increase?
- What time can I leave in the afternoon?
These questions are inappropriate at this stage and will probably raise concerns on the side of the interviewer. Should you be the successful candidate then all these questions will be answered in your letter of appointment so don’t waste this opportunity by asking these basic questions.
If the position is an entry level job or very junior then you are welcome to ask questions in line with the position, for instance:
- Why did the previous person leave the position?
- What would the successful person be tasked to do in a typical day?
- How does this position fit into the department and / or company?
- Could you explain the company structure to me?
- Is there any further education assistance or support?
If the position is more senior then you can prepare question around the following themes:
- current issues that will face the successful candidate;
- inter-personal challenges in the department;
- any process, technology or people challenges that needs to be attended to urgently;
- key result areas that need urgent attention in the first few months;
The above information should get you started. Prepare a few questions so that you can show your worth. Good luck with your interview!
