If your creditor does not follow the proper protocols when offering you credit, they may be guilty of reckless lending. As a result, your credit record may suffer a blow.
If this happens to you, how can you address it? We have a look at what reckless lending is, what you should do in this situation, and how you can fix your credit score.
Tip: Find out what your credit score is today to know whether it needs mending.
What is reckless lending?
According to the National Credit Regulator, reckless lending is when a creditor does not perform the necessary checks before granting someone credit.
Creditors are required to do a thorough debt assessment on their new client. They need to make sure the client understands the risks of taking out the credit, and the credit should not push them into the realm of being over-indebted.
If you suspect that you were a victim of reckless lending, you need to go to court or reach out to the National Consumer Tribunal. They will investigate your case and establish whether your creditor was in the wrong.
This will be done for you if you’ve entered into debt counselling. Be honest and open with your debt counsellor about your credit agreements.
Arthur Hlubi, executive of legal and compliance at Bayport Financial Services, uses the following example to illustrate reckless lending:
A customer approaches a credit provider for a personal loan. They’re looking for a credit amount of R10,000. During the application process, an affordability assessment is conducted and it is found that, after all obligations, they have R700 left per month.
However, the required monthly loan instalment over 12 months is R 1,000. If the credit provider approves this application, the amount left after the customer’s financial obligations will be less than the required loan repayment amount. This is considered a reckless credit agreement.
Hlubi explains that the reckless lending provision does not apply to agreements before June 2007, or in any of the following instances:
- A school loan or student loan
- An emergency loan
- A public interest credit agreement
- A pawn transaction
Start fixing your credit score today
Hlubi says that credit score adjustment in the case of reckless lending should be dealt with on a case-by-case approach as circumstances may differ.
“Customers are encouraged to approach the Credit Ombud or the NCR to evaluate their case and investigate the matter with the credit provider in question. This is at no cost to the customer and these entities can facilitate an amicable and fair resolution,” says Hlubi.
If it’s proven that you’re a victim of reckless lending, you could present the outcome of your case to the local credit bureaus so that they can reassess your credit score. With this information, they might amend it and remove the adverse information from your record.
However, there are also ways you can improve your score from your side and ensure it stays high going forward. According to Rhys Dyer, CEO of ooba Home Loans, you should consider the following when you try to improve your credit score:
- Avoid late payments: Pay your debt on time, every time.
- Never pay less: Fulfil your minimum debt instalments each month and, where possible, pay in more than the required amount. Failing to pay the full amount will damage your credit score, and can result in a judgement against you.
- Too much debt is not a good thing: Do not max out your credit facilities because this will impact your score.
- Avoid different credit cards: Avoid having lots of different credit cards and personal loans. This sort of debt can lower your score.
- Avoid frequent applications: Avoid applying for new credit card facilities or increasing existing credit limits on a regular basis. A high volume of credit checks conducted by banks and retailers against your ID number can weaken your credit score.
- Say no to surety: If a friend or family asks you to sign surety on their debt agreements, don’t say yes without considering the consequences. This can impair your credit record and score, should they default on their payments.
- Downscale your lifestyle: Rather than living off your credit card and falling into debt to maintain your current lifestyle, rather change your lifestyle to accommodate your financial situation. It’s impossible to maintain debt if you’re eating into money that you cannot repay.
- Some debt is good: Having healthy debt is a good thing. Not having a credit repayment history will impair your credit score.
The first step to repairing your credit score is to know what it is. Click here to find out.