One of the most significant apprehensions many South Africans face when considering Debt Review is its impact on their credit score. Yet, it’s crucial to perceive Debt Review not as a financial backstep but as a constructive mechanism designed for your financial betterment.
Will my credit score improve? Can I confidently apply for credit again? We’re here to alleviate those fears by outlining what exactly happens to your credit score during the process and when you successfully exit Debt Review.
Debt Review: A Brief Recap
Debt Review, also known as Debt Counselling, was introduced through the National Credit Act (NCA) in 2007. Its primary purpose is to assist consumers struggling with overwhelming debt by restructuring their repayments into more manageable amounts, ensuring both living expenses and debt obligations are met.
It’s a lifeline, providing structured repayment plans, protecting your assets from repossession, and ultimately leading you to a debt-free life.
Impact on Credit Score During Debt Review
When you enter Debt Review, a flag is placed on your credit profile, indicating to creditors that you’re under Debt Review. While under Debt Review, your credit score will decrease since you won’t be taking on new credit.
This flag is essential as it temporarily prevents you from incurring additional debt, allowing you to focus on repayment.
Impact on Credit Score After Debt Review
After completing your repayments, you receive a Clearance Certificate (Form 19). This significant document is evidence that you’ve met your obligations, marking the official end of Debt Review.
This document is crucial as it not only signals to the credit bureaus that you’ve satisfactorily met your debt obligations but as the tool that resets your credit score. Upon issuance, credit bureaus are notified to remove the Debt Review flag from your profile. This process might take a few days to weeks.
Post Debt Review: Credit Score Recovery
Initially, you may notice your credit score isn’t where you want it to be. However, the removal of the Debt Review flag is already a positive step towards improvement. Instead, think of it as a rebuilding phase. The removal of the Debt Review status won’t erase your credit history but offers you a clean slate to commence rebuilding.
Starting fresh means your credit history will be relatively thin. But over time, with responsible financial habits, your credit score will progressively increase. You can strategically improve your credit score by being consistent in paying your current bills and financial commitments on time and keeping your credit balances low. A lower credit utilisation ratio is favourable for a healthier credit score.
It’s advisable to use any new credit responsibly. Start with small manageable lines of credit and consistently meet the repayment deadlines. Limit the number of hard inquiries on your credit report, as multiple inquiries in a short span can lower your score. This behaviour will positively reflect on your credit profile, gradually boosting your credit score.
Upon receiving your Clearance Certificate, you may immediately apply for credit, but with a limited credit history, approvals aren’t guaranteed. However, diligent financial management can lead to credit score improvement in 6 to 12 months, with some acquiring credit within this period.
Consistent financial responsibility over 1 to 2 years substantially boosts your creditworthiness, increasing the likelihood of receiving credit approval under favourable terms.
Debt Review is a structured, purposeful intervention, guiding you back to financial health.
It’s temporary, and upon completion, you receive a Clearance Certificate, facilitating your reentry into the credit market. Understanding the dynamics of your credit score post Debt Review arms you with knowledge and commitment to financial responsibility.
Contact Debt Rescue if you would like to talk to an expert debt counsellor for a free assessment for a reduced single debt repayment.