How to navigate credit in a time of high interest rates and cost of living

The current environment of high interest rates as well as high cost of living makes life exceedingly difficult for consumers and they often opt to borrow more money to make ends meet. Between the high interest they have to pay on their debt and price increases from fuel to food, many South Africans are struggling financially and many are forced to borrow.

Even if you are not planning to borrow money, now is the best time to focus on making sure that your credit record is protected and your credit score is built and maintained. Doing so will mean that you will be able to access the additional credit you need, when you need it, as lenders will be able to see that you can manage it, Dee Chetty, chief product officer at TransUnion South Africa, says.

“Your credit history provides insights into your habits and behaviours and how well you can manage the debt responsibilities that come your way. A favourable credit history and a good score lets lenders assess the risk you present to them when you apply and a positive history and score significantly improve your chances of being granted credit.”

Chetty says a good score also makes it easier for you to leverage credit responsibility as a strategic tool to navigate financial challenges. For example, you could negotiate better terms on your credit products if you have a higher score, which will reduce your monthly repayment commitments.

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How to build a good credit history and score

You have to be strategic about building your credit history and score is essential for success. Chetty offers these four suggestions:

• Be punctual with payments. Whether you are paying off your credit card or paying down that personal loan, make sure you do it on time or even a little bit early, because payment behaviour plays a significant role in calculating your credit score. Setting up automatic payments or reminders will help you make sure you meet or even beat deadlines.
• Diversify your portfolio. Showing diversity in your credit portfolio can help boost your score, which will show lenders that you manage a mix of different borrowing products and services. Make sure that you manage them responsibly and limit use.
• Avoid pushing the limits. Aiming for a usage rate of less than 30% (not using 30% of the credit limit that is available to you) shows lenders that you can exercise restraint and that you are capable of responsible financial behaviour.
• Monitor your credit report. At a time when fraudsters and cyber criminals are forever finding new ways to steal, monitoring your credit report will reveal any discrepancies, unauthorised transactions on your accounts, or other fraudulent activities. Consumers are entitled to one free credit report from TransUnion each year that they can use to check.

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Holistic strategy for financial management

“While many experts believe that South Africa is at the top of the current interest rate hike cycle, it is likely to be a while before any drops in the interest rate make a difference to consumers’ cost of living. That is why it remains important to have a holistic strategy for financial management, beyond focusing on how you manage credit,” Chetty says.

He suggests comprehensive budgeting and financial planning, including tracking essential spending, prioritising a savings strategy for resilience and emergencies and taking advantage of financial literacy workshops or online resources.

“South Africans are extraordinarily resilient and will surely be even more so by putting prudent financial practices in place, building financial wellbeing and maintaining management of their credit profile. Doing this is sure to equip us to navigate any financial challenges with confidence, while passing down these valuable skills to the generations that follows us.”