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Under debt review? Here’s what happens to your credit record

Published May 25, 2022

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Sebastien Alexanderson

THE Reserve Bank last week announced a further interest rate hike of 50 basis points to 4.75 percent, its largest incremental hike since 2016. The increase will likely see a rise in the 66 percent of South African credit seekers already getting rejected.

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South Africans are battling with not only trying to make ends meet, but also, with keeping their credit records in good shape. As one of the main determinants of whether your credit application will be approved or rejected, a credit record is undoubtedly the most important aspect of any credit transaction.

It’s not surprising that when contemplating debt review as a solution to a debt problem, many of us worry about the implications that the process will have on our credit records.

What is a credit report and why is it important?

If you have ever taken up credit, whether it be a loan, a credit card, a furniture account, or even 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 bureaus, 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.

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What happens to your credit record when you go under debt review?

When you go under debt review, you are declared over-indebted and flagged at the credit bureaus as a debt review client. This prevents you from taking up any more credit as the main purpose of debt review is 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.

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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 bureaus so that they can 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.

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Life after debt review, the window period

Once you have successfully 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 that should show 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 of the settled payments show up, report them to the credit bureau immediately.

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 being given free swimming lessons to take with from 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

Sebastien Alexanderson is a founder and debt counsellor at National Debt Advisers (NDA)

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