Will debt counselling affect your credit score in South Africa?

Debt counselling can affect your credit score in the following ways:

• When you consistently repay your accounts (which will be the case with the debt counselling process), you will be able to rehabilitate your credit score. 
• It is, however, important to note that after you have successfully completed the debt review process, your credit score will probably be zero. Debt counselling is an opportunity for you to start with a clean credit slate and slowly start rebuilding that new, improved credit score. 

How long will debt counselling affect your credit score?

Debt counselling can affect your credit score for as long as you are under the process. As was mentioned earlier in the blog post, debt counselling may leave you with a credit score of zero after, so this is a chance to slowly rebuild your credit score. 

You can do this by opening a retail or store account and managing your credit usage wisely. This means not using up all your available credit, but rather, aiming to keep your usage below 30%. You should also ensure that you consistently make your monthly repayments on time for this account.

Disadvantages of debt review in South Africa

You won't be able to take out new credit when you are in the process

• This is to protect you from getting into further debt, to protect your creditors who have lowered your interest rates on your loans, and to ensure creditors no longer harass you. It wouldn't be fair to creditors if you took out more credit at the 'normal' credit rates.
• It is very important to remember that you won't always be prevented from taking out new credit. Once you have completed the process, you will be able to apply for new credit and you will probably be in a better position than you were in before because you now have a clean credit slate to work with.

Debt review is NOT a quick fix

• If you are feeling the struggle and want a quick fix to get out of debt, debt counselling is not the route to go. The truth is to get out of debt and sustainably stay out of debt (stay out of debt for the long-run), you have to be disciplined and recognise that it will take some time. It's not impossible. Your situation isn't hopeless. It just won't be a quick fix. 

How long after debt review can you buy a car or home?

You should be able to apply for debt ONE week after receiving your Clearance Certificate. A clearance certificate is the document that lets both you and credit bureaus know you've successfully completed the debt review process. However, according to the National Credit Regulator (NCR), Credit Bureaus have up to 21 days to update your profile. Because of this, we would suggest waiting a bit longer and checking your credit report for about 3-4 months after finishing the process. 

A reminder that applying for credit for a car or home would mean that you would need a sufficient credit score. After the debt review process, this would mean starting with opening a 'smaller credit option' like a retail account. You would then need to keep this account open and make consistent payments for a year, AND THEN, move on to applying for a home or car. 

Who is Meerkat?

Meerkat is a financial wellness company that wants to help South African consumers do MORE with their money. We can help with debt repayment negotiations, provide affordable insurance and help you kickstart an emergency fund

Fill in the contact form on our website to receive a free callback from the Meerkat team today.