Nicola Mawson
Although South Africa’s interest rate, at 11.75%, is still at a 14-year high as the South African Reserve Bank seeks to trim inflation further, thousands of South Africans are diligently working on improving their credit score status.
More than half of all South Africans are keeping an eye on their credit score to improve their credit ranking, according to a new survey by TransUnion, which included millions of participants from both developed and developing countries.
TransUnion’s research into 3.3 million South Africans who are logged into its platform to check how they are doing financially has shown that the number of delinquencies, people with overdue bills of 30 days or more, has improved vastly over the past six to eight months.
Just a year ago, news reports were awash with the fact that banks had needed to increase their provisions for bad debt across the board, even as they paid out record dividends.
Media articles last August – during the typical financial report cycle for banks – indicated that Nedbank reported a 13% increase in impairment charges for the 2022 year, Capitec’s impairment charges went up a whopping 80%, while Absa also slightly increased coverage for non-performing loans to 29%. Standard Bank’s impairment cover went up by 22%.
DebtBusters’ 2023 Money-Stress Tracker said those who are feeling credit stress had increased from 70% in 2022 to 78% last year.
A year later, and the bad debt situation seems to be looking better, with TransUnion stating that consumers are getting better at “curing” themselves when it comes to bad debt while, at the same time, there are fewer people going into delinquencies, which is why this portfolio of borrowers is stable, said Nidhi Verma, co-author of the study and head of international research and consulting at TransUnion.
According to Verma, credit monitoring allows people to come out of bad debt quicker because it provides them with a view in terms of what is happening with their accounts. Speaking during a presentation for the launch of TransUnion’s Consumer Pulse Survey on Tuesday, she said that 15% of those who actively monitor their credit score improve their debt levels, and are more likely to “cure” them within a year, compared with 12% of consumers who don’t keep an eye on their financial standing.
TransUnion’s research found that about a third of local consumers monitor their credit seeking to keep eye on their overall balances and credit health. Those whose credit scores are near or above what is considered to be a prime figure of 655, with a score of 610 needed to apply for a home loan, are people who are considered to be credit managers. Of these, 34% have found that monitoring their credit had helped them pay down debt.
“Even though we are in a high-interest rate environment with consumers leveraging credit to make everyday purchases, it’s reassuring to see so many South Africans taking the initiative to ensure they are paying down or managing their debt levels, and that credit monitoring plays an important role in achieving that goal,” said Lee Naik, CEO of TransUnion Africa.
TransUnion’s survey, of 12 551 consumers, was conducted between July 6 and 25 as well as September 25 to October 18, 2023, covering adults over 18 living in Brazil, Canada, Chile, Colombia, the Dominican Republic, Guatemala, Hong Kong, India, the Philippines, South Africa, the UK and the US.
In South Africa, 85% of consumers who were surveyed said it is at least moderately important to monitor their credit, with more than a third saying it’s extremely important. This, TransUnion’s Consumer Pulse Survey said, shows that consumer awareness of credit monitoring is high and is a likely driver behind the surge in monitoring activity in recent years.
The company noted that the considerable expansion of awareness and credit monitoring over the past decade was “fuelled by the impact of the pandemic on consumer finances, the current high-interest rate, high inflation environment, and consumers’ heightened awareness of taking steps to avoid becoming victims of credit fraud,” said Verma.
TransUnion
TransUnion’s survey found that 35% of South Africans were being proactive by using credit monitoring to detect and protect against fraud. “This benefit is of increased importance to consumers considering the continued rise in fraud activity that has been observed since the onset of the Covid-19 pandemic,” said the credit monitoring bureau.
Fraud is an ever-constant issue. The South African Banking Risk Information Centre (SABRIC) reported that, in 2022, “South Africa witnessed an alarming 36% surge in reported incidents of online banking fraud”. The report, its latest, noted that fraudsters deployed a range of tactics, including social engineering and “vishing” scams to deceive victims into divulging sensitive information.
Financial losses per incident in online banking fraud soared in 2022, reflecting a 9% increase from the previous year, said SABRIC. Phishing and vishing continued to be the preferred methods for illicitly gaining access to confidential banking data, it noted.
TransUnion asked consumers why they signed up for credit monitoring services, with the most common being trying to improve their credit score (47%), to learn about credit offers they may qualify for (33%), and to monitor their report for accuracy (31%). Benefits they had experienced include that credit monitoring has allowed them to learn how to monitor and manage their credit score (55%), make regular payments (42%), and pay down debt (34%).
PERSONAL FINANCE