After securing your first job, you muster up the courage to approach a car dealership and put down a deposit for your first set of wheels. But you quickly find out that your credit score is inadequate; or more specifically, that you don’t have a credit score at all.
When seeking advice on how to remedy this, you constantly hear a single phrase: “Just open an Edgars account”. Rumour has it that paying off a pair of shoes can establish your credit record, and have it blossom into a meaningful reference.
“I am no financial expert, but I do know that ‘opening an Edgards account’ works,” says Nalene de Klerk, a Pretoria based, media and research liaison.
“I was told to open an account in order to put me on the map with credit providers, so I opened two accounts: one with Edgars and one with another reputable clothing franchise,” explains De Klerk.
After a year she decided to open a credit account at her local bank, and her credit score with Edgars provided a great reference. However, the other retailer’s information didn’t reflect at all.
“I guess that’s why people specifically refer to Edgars. They put my credit information on the system, and the other retailer did not,” De Klerk remarks.
Why do retail credit accounts, like Edgars, work?
According to Garnet Jensen, senior director at TransUnion Interactive, one of the top credit bureaus in South Africa, they look at a consumer’s historic credit usage patterns to understand their particular ability to manage and meet their credit commitments.
“It is thus more difficult for a credit provider to assess a consumer’s credit worthiness with little or no credit history,” says Jensen.
She advises customers to start building a credit history with smaller credit-based purchases, rather than with large items, like a house or a car. Although the latter is possible, they are onerous and should be taken on by consumers with experience in managing smaller credit commitments first.
“Credit agreements available through retailers, are seen as a good first step, as the credit amount and terms are not onerous, and thus more manageable for someone who is new to credit,” says Jensen.
An Edcon spokesperson agrees that obtaining credit from a retailer is far easier than entering into a hire purchase credit agreement with banks and dealerships.
“For credit decisions (e.g. home loan or vehicle finance applications) to be made, consumers do need a credit record to enable access to these forms of credit,” the spokesperson says.
However, she cautions against opening too many retail credit accounts, which could be seen in a negative light by credit bureaus. A natural next step would be to follow in De Klerk’s footsteps, and enquire about open a credit card with a small manageable credit limit.
If you’d like to open an Edgars account, bring along three months bank statements and a copy of your ID to your nearest store.