More SA consumers keeping track of their credit – report

The dire financial circumstances of the past few years have forced South Africans to ‘grow up’ about credit. More than half of them now monitor their credit reports and scores doing it to improve their credit scores.

In addition to 51% monitoring their credit to improve their credit scores, 29% monitor their credit report with the goal of paying down debt and preventing fraud activities, while 20% do so in anticipation of opening new credit accounts. This is according to a new TransUnion global study to better understand the distinct profiles, motivations and outcomes of credit monitoring consumers.

The global research study examined the credit behaviour of millions of consumers in developed and developing markets in South Africa, Brazil, Canada, Chile, Colombia, the Dominican Republic, Guatemala, Hong Kong, India, the Philippines, the United Kingdom and the United States.

To further identify how these benefits advance credit education and enable financial inclusion, the study used depersonalised credit data to analyse these outcomes for key consumer credit segments: New-to-Credit, underserved and credit-served consumers.

“Consumer credit monitoring expanded considerably in awareness and usage over the past decade. This expansion 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,” says Nidhi Verma, co-author of the study and head of international research and consulting at TransUnion.

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Shows importance of credit education

“Our study measures the importance of credit education and quantifies the benefits that credit monitoring consumers experience. These benefits are shown to lead to better credit profiles, greater access to credit, or an improved ability to pay down debt, depending on the intent of consumers who monitor credit.”

In South Africa, 85% of surveyed consumers stated that it is at least moderately important to monitor their credit, with more than a third (36%) saying it’s extremely important. This finding demonstrated that consumer awareness of credit monitoring is high and is a likely driver behind the surge in monitoring activity in recent years.

TransUnion surveyed consumers to understand their initial intent to sign up for credit monitoring services and the actual benefits they experienced. The most common reasons South African consumers initially signed up for credit monitoring services were that they were 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%).

Additionally, after using monitoring services for some time, consumers reported realising added benefits. These 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%).

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Three kinds of credit monitoring users

The study further identified three distinct segments of credit-monitoring consumers based on their primary motivation for monitoring their credit. These include Credit Improvers, Credit Seekers and Credit Managers.

Credit Improvers, who make up 51% of the South African credit monitoring population, are defined as consumers with subprime (poor) credit scores who likely use credit monitoring to understand their current credit situations and take steps to improve their credit scores. The study found that Credit Improvers in South Africa generally experienced larger credit score improvements one year after they started monitoring their credit than consumers who have no history of credit monitoring.

In addition to improving scores, credit monitoring subprime consumers are looking to improve their delinquencies, by better understanding their obligations and how their payments impact their credit scores.

With that in mind, TransUnion found that those who monitor credit cured their delinquent credit card accounts – meaning they improved their account status from past due to current – at a three percentage points higher rate than those who do not monitor credit.

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Improvement in cure rates

This improvement in cure rates was observed amongst consumers who were delinquent before signing up for self-credit monitoring and subsequently became current on their overdue payments within the first three, six, or 12 months of monitoring credit.

“The volume of South African consumers enrolled in credit monitoring tools for the first time with TransUnion has been growing steadily for years. Credit Improvers are the largest segment of credit monitoring consumers in South Africa and tend to see some of the most impactful benefits in terms of credit profile improvement,” Lee Naik, CEO of TransUnion Africa, says.

“It is a clear indication that consumers who are actively looking to improve their credit standing may achieve better results if they monitor their credit and are able to plan their financial obligations and track their progress.”