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Loan sharks’ hidden costs

Credit mbudsman, Manie van Schalkwyk, has warned consumers to be vigilant when taking out loans.

Mvula Mbhele recently lodged a complaint with the credit ombud against a certain credit provider. He was not aware there were hidden or unexplained charges levied against him after taking out a loan.

He also accused the money-lender of granting him a loan knowing it would render him over-indebted. He took out a loan of R5000, but later realised he would not be able to repay the loan as agreed. The credit provider placed a garnishee order on his salary for R800 a month to recover the debt from October 2008 to March 2011.

“The total amount I had paid by April 2011 was R24000, but I was told I still owed R6760 on the loan,” Mbele said.

The Office of the Credit Ombud found the collections agent for the micro- lender had acted in contravention of the National Credit Act and was ordered to close the file and write-off the outstanding balance.

Van Schalkwyk said his office also issued a letter to the consumer’s salary department, requesting the garnishee be stopped with immediate effect. He said credit providers were entitled to include a number of charges in a credit agreement, but these had to be in line with national credit regulations.

“Costs that a credit provider is allowed to include in the credit agreement over and above the principle debt or capital amount includes service fees, initiation fees, credit insurance and interest.”

The credit agreement must explain all the costs to the consumer. He said monthly service fees were not allowed to be more than R50 plus VAT per month or R600 plus VAT per year. Contact the credit ombud office on 086-1662-837 or visit www.creditombud.org.za

Your credit record: free annual report

Check the correctness of your credit status free each year. It is the your responsibility to ensure that the correct details appear on your credit record – if incorrect adverse details are captured, your credit worthiness might be prejudiced!

How and where can I get a free credit report?

The NCA states that, you, as a consumer, have the right to obtain a free copy of your credit report, once a year, provided that you apply in the month of your birth or thereafter . Any further copies of your credit report will be charged at R22.80.

You can order your Experian credit report by contacting Experian’s Consumer Relations desk on 0861 10 56 65, and they will gladly send a copy of your report, on receipt of a completed request form and verification documents.

What information must I supply in order to get my free credit report?

According to the Act (section 50), verification of your details must be done in line with the requirements of the Financial Intelligence Centre Act (FICA).

In order to comply with FICA, you are required to provide proof of your full names, date of birth and identity number e.g. copy of your identity document and proof of your residential address e.g. a telephone account less than 3 months old.

How will my credit report be sent to me?

You can choose how you would like to receive your credit report; either by fax, email, or by post.

What can I do if the information on my credit report is incorrect?

The NCA has prescribed a process for managing consumer disputes with the credit bureau. If you believe that the information on your Experian credit report is incorrect, you should do the following:

1. Contact Experian Consumer Relations Division on 0861 10 56 65 and inform them that you wish to register a dispute.

2. Experian will investigate the dispute and respond within 20 business days. Credit providers will be notified that there is a dispute on your record but will not be able to view the disputed information during this investigation period.

3. Should the information prove to be incorrect or unsubstantiated it will be removed immediately.

4. Experian will notify both you and all relevant credit providers of the correction.

Should you not be satisfied with the resolution of your query you may contact the office of the Credit Information Ombud on 0861 66 28 37.

Debt Collectors and Collecting Debts

Bill collectors and collecting debts isn’t the easiest job in the world, and it definitely isn’t for everyone. These are the people who send you a letter every now and then reminding you to pay your outstanding bill; otherwise they will have to take the matter even further. When you owe someone money, it isn’t a case of if you don’t pay it now you will go to court; there is actually quite a process involved in something like this and only the techniques of qualified debt collectors know how to manage it. You could be in trouble for loans you made and didn’t fully pay up, it could be clothing accounts, school fees, rent, just about anything.

You will get blacklisted if you don’t cooperative and come up with a payment arrangement with the bill collectors and collecting debt people. There aren’t really any tips on how you can avoid something like this happening to you, the only thing you can do is make sure that all your debts are made on time each month and you won’t have a problem. However, once you have a debt collector after you, you will think of nothing else but getting that bill paid, not necessarily because you want it paid, but more because they call you all the time to remind you that it has not yet been settled.

Once you have received your “Final Demand” letter, there is no turning back. If you don’t give them the money you owe them, they will take legal action and make things even more difficult for you. They have their techniques and they know how to do things; they have perfected the process already and no amount of sob story will make them change their minds. Whether you use the help of loans or not, you have to pay what you owe if you want to avoid being blacklisted. Take these tips into consideration and you will see what the bill collectors and collecting debt consultants can do.

Loans aren’t Available for People under Administration

It may be unfortunate for some, but the truth is that loans aren’t available for people under administration. If you are under administration it means that you have bad credit finance and debt reviewers or credit administrators are handling your debt. Therefore, you will not be able to take out a loan of any kind, unless you go against SA law and participate in illegal lending, but this is never recommended. Being caught in illegal lending is serious and will only get you further into trouble. You are more than likely blacklisted at this stage, but if you are not, taking out a loan illegally and not sticking to the repayments will definitely get you blacklisted.

According to the SA law, loans aren’t available for people under administration, which is fair because you already have bad credit finance, why put yourself in even more debt? Credit administrators and debt reviewers will do what they can to help you out of your situation; they will look at your financial status and negotiate with your creditors and settle on a monthly amount that you can afford to pay them off. This is what they are there for, to take some of the stress off of you, and so you don’t get those stressful phone calls from creditors demanding money that you don’t have.

Many people make use of consolidation loans, which is a loan you take out to pay off all your debt, but even this is not advised if you are under review. Taking out loans is okay if you can afford the instalments, but not when you already have so much debt that you need to go under debt review and administration. There are good reasons why loans aren’t available for people under administration, and it is important for you to stick to the rules.

Tips for Saving money

So what can you do to start saving?
The 10% rule
Your goal should be to save at least 10% of your total before tax earnings. But this is difficult in
difficult times but here are a few tips to help you achieve that:
Make savings a priority
Whether you are saving for a major purchase or for your retirement, you will never reach your
goals unless you make savings a priority. Little changes can add up to big savings on expenses.
Those savings can be put to good use for achieving your long term savings goals.
Make saving fun
Turn savings into a game. Instead of force feeding budgeting tips to yourself, look at this as an
adventure. Try to top your own savings each week or compete with a friend.
Know the difference between NEED and WANT
Never see it
One of the best ways to save money is to never see it. Set up direct debits, designate that
some of your money goes directly into a savings account.
Money jar – every penny counts
Throw all your change into a jar each night – it’s a great way to save money.
Keep a note of how much you spend
For one full month – this will allow you to calculate how much your day to day living is costing
you.
Create a Budget
A great way to help save money is to create a budget, and then stick to it. Even by just
tracking where the money is going, you will be more aware of your spending habits and
eliminate unnecessary spending.
Pocket money
Give yourself pocket money allowance. Your spending should not exceed your allowance. After
the money is gone, its gone.
Pay your bills
Try to pay your bills by direct debit every month. Late fees chip away at money you could be
savings.
Credit card
Try to stop using your credit card and stick to the money you actually have and use your debit
card instead.
Pay Yourself First
Start a regular savings plan that could form the backbone of a fund from which you will be able
to draw money to cover the necessities of life.
Structure a Plan and stick to it
Start by getting the professional services of a financial adviser.
Get some help from your friends
Compound interest and the government can both be your savings friend. If you start saving and
stick to your plan, interest soon joins you and starts adding as well.
Pay off your debts
Credit card debt has one of the highest rates of interest you can pay. Don’t just pay the
minimum monthly charge, but try to pay your credit card in full this will improve your overall
financial security.
How much is enough?
Asking this question means you are thinking “how much can I spend” instead of setting your
priorities on how much you can save.
Saving for Retirement
• Retirement need not be regarded as a point in time but rather as a period over which
transition is made from living off earnings to living off savings. When you cannot work
in old age your money will be working for you.
• You must start early enough, and you must save enough. If you leave off starting to
save for retirement from 30 years before to 10 years before, you will have to put away
10 times as much each month.
• You need to take retirement savings seriously and do more than your parents and
grandparents did
Saving for education
Savings funds can be set up long before it is known exactly where they will be needed.
Save a bonus in an RA and each year after that top it up by the amount saved in tax from the
previous year plus the amount by which the bonus for the current year exceeds the bonus from
the previous year.
Double up on money saved by your children to encourage them to develop a savings habit.
Live closer to work
And pay more for the house, an appreciating asset, rather than on petrol and maintenance on
the car.
House insurance:
You don’t need to insure your house with your lender – shop around to find the best home
building insurance deal you can get.
Food shopping
• Stop buying processed food at the supermarket and make food from scratch.
• Buy only what you need in perishables – how many of us root through our veggie draw
to find mouldy lettuce etc.
• Buy in bulk – single packs often cost nearly as much as multi-packs.
• Buy family pack items these often work out cheaper than smaller packages and can be
divided and frozen for later use.
Don’t let your eyes be bigger than your tummy
Buy only what you need for the week and avoid stocking up with food which could spoil quickly.
If you run out of food mid-week its no big deal to make a second trip to the supermarket.
Cook at home and bring your leftovers for lunch.
Make your lunch
Get into the habit of rustling up your own food and you can easily pocket half of that cash,
using the other half to bulk buy your groceries at the supermarket.
Downgrade your brand purchases
Going for the cheapest is a bit over the top but how about dropping a brand level on everything
you can and the overall price drops by roughly 30%. Often you are only paying for the branded
packaging anyway.
Give alternative gifts
• “it’s the thought that counts” – put that to the test by offering alternative gifts. Home
make your presents, offer a service, – they’ll love your thoughtfulness and you get to
pocket the cash you would have otherwise spent.
Banking
• Eliminate unnecessary fees.
• Avoid ATMs outside your network.
• Check with you bank to make sure you have the best type of account for your needs.
• Sign up for automatic bill paying to avoid late fees and tarnished credit.
• Get it out of sight – Getting money immediately withdrawn from you paycheck and put
into savings is a great way to create a nice little nest egg.
Windfalls, bonuses
Use unexpected refunds, monetary gifts, bonuses, lottery winnings to pad your savings rather
than fund your spending splurges.
Monitor your mortgage
Keeping on top of your mortgage situation can help you save big.
Car Insurance
Always keep up to date on your car insurance – remember each year your cars value will
decrease – remember to amend the retail/ market value on your insurance to ensure you are
paying the right premiums for your car insurance.
Household insurance
Update your household inventory for insurance purposes. Check on replacement costs, grade
your household goods correctly to ensure you are not over insuring your household items.
Electricity bill savings
• Electricity is a problem in South Africa and the cost keep soaring, so you have to do
what you can to keep your electricity bill down.
• Switch off the TV when no one is watching.
• Turn off the lights when you not using them.
• Buy energy efficient products/appliances (this also saves the environment).
• Unplug unused appliances – eg only have charges plugged in when you are charging
things.
• Wash you clothes in cold water, and hang your clothes rather than using the tumble
dryer.
Home maintenance
Maintain your home – taking good care of your house can save you lots of money
Watch less TV
Do you really need 300 channels – Going down a tier in your DSTV service can save you some
cash too.
Cell phone
Know your cell phone – match your usage as closely as possible to a plan – so you neither pay
for service you don’t use – change your cell phone package to suit you real needs.
General shopping
• Compare prices – shop around for the best prices.
• Familiarize yourself with seasonal sales.
• Forbid yourself from buying things simply because they on sale. Regardless of bargain
prices and extra expense is just that – yet another drain on your resources.
• Be a smart shopper by buying quality when it counts.
• Delay gratification – giving yourself more time to think about a purchase means you’ll
make a more informed, less impetuous decision.
Groceries
• Always shop on a full stomach. Anyone else drawn to junk food in a store when they
shop hungry?
• Always shop with a list – it keeps you focused on what you really need.
• Plan your meals.
• Go fresh food – pre-packaged food generally costs more and are not good for you.
• Buy non perishables in bulk can save you on your monthly shop.
Family and lifestyle
Make savings a family affair – have a fun programme of savings for everyone to enjoy – the
kitchen jar to save money for a family holiday.
Your car
• Keep your tyres properly inflated – you’ll prolong their life as well as save on petrol.
• Regular maintenance of your car – like your home – will last longer if you invest in
regular maintenance. Make it part of your routine to check the cars oil, water and tyres
regularly.
Discount shopping
Some products are cheaper at certain times of the year. Follow the shops sales cycles and use
this to your advantage and build a shopping calendar.
Swap toys
If you have kids, instead of buying lots of expensive toys, consider swapping toys with friends
and family. Kids often lose interest with their toys, but have a greater interest in new toys. By
swapping you can increase the frequency of new toys without spending any additional money.
Be a late trend follower
Its tough to have to wait when the newest mobile phone or games consol has just hit the
market – but if you can hold back from buying until at least 6 months after the new technology
is launched you could save up to 50%.
Get healthy
Your health will directly impact the cost of life insurance and in some cases can you reduce
your health insurance, and unforeseen or budgeted for bills if you get ill.

The Financial Intelligence Centre Act (FICA)

The latest and most comprehensive legislation detailing money laundering controls is the Financial Intelligence Centre Act (Fica), the focus of which is on control requirements.

What is Money Laundering?

Money Laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities. Its purpose is to allow them to maintain control over those proceeds and, ultimately, provide a legitimate cover for the source of their income.

Fica creates money laundering control obligations for banks and other institutions and professionals, such as estate agents, brokers, attorneys and insurance companies.

Customer identification is a crucial element of any effective money laundering control system. We must implement reasonable measures for us to know who our customers are and to prevent criminals from using false or stolen identities to gain access to our services.

Since 1 July 2003 banks were required to obtain certain information and supporting documents from new customers before accounts could be opened. Furthermore, Fica requires that banks re-identify their existing customers (those taken on before 1 July 2003).

One of the major elements of the financial institutions obligation is to know their client. In short clients need to be identified by the use of their green bar coded identity book, and they have to prove were they live. This is usually done by means of a utility bill, which is addressed to you at your physical address.

Due to the additional time and paperwork required for this verification, professionals like attorneys are charging for this service. When purchasing a house you will see on the breakdown of your attorney’s fees a line entry for FICA Verification.

Understanding your credit score

A credit score is a summary of a number of positive and negative factors on your credit report that aims to predict how likely you are to honour your credit commitments in future. This rating is often used by lenders to identify the risk in offering you credit.

Are all credit scores the same?

No. There is no single credit score. TransUnion provide an Empirica® credit score on request. Experian have developed the Delphi® score and include it in all their credit records.

The Delphi ScoreL

Experian makes use of the Delphi® credit score that ranks your credit rating. This score will only appear on an Experian credit report. The score is calculated by a computer programme that takes all your credit profile information and converts it to a simple three digit number or “score”. The Delphi® score number will range between 0 and 750. Based on Experian Credit bureau data, the higher the number the more likely you are to meet your credit commitments in future.

The Empirica score:

Fair Isaac & Co developed a credit measurement tool in the 1950’s called the FICO® score. This score has become the basis for most other credit scores and the Empirica® score used by TransUnion is largely based on it.

How is a credit score arrived at?

Generally a credit score evaluates five main categories of information:

Payment history ( 35% of the overall score)

  • Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.).
  • Presence of adverse public records (insolvency, administration, debt counselling, judgments, bonds), collection notices, and/or adverse information concerning payment or non-payment.
  • Severity of arrears (how long past due).
  • Amount past due on arrear accounts or collection items.
  • Time since arrear items, adverse public records (if any), or collection items (if any).
  • Number of past due items on file.
  • Number of accounts paid as agreed.

Amounts owed (30% of the overall score)

  • Amount owing on accounts.
  • Amount owing on specific types of accounts.
  • Lack of a specific type of balance, in some cases.
  • Number of accounts with balances.
  • Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts).
  • Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans).

Length of credit history (15% of the overall score)

  • Time since accounts opened.
  • Time since accounts opened, by specific type of account.
  • Time since account activity.

New credit (10% of the overall score)

  • Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
  • Number of recent credit inquiries.
  • Time since recent account opening(s), by type of account.
  • Time since credit inquiry(s).
  • Re-establishment of positive credit history following past payment problems.

Type of credit used (10% of the overall score)

Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.).

Each of the above noted factors, along with others, are assigned a value and a weight. Different creditors assign different values or weightings, depending on their experience of how important each of these factors are in their market.

The results of these factors are then added up and combined into a single number. FICO® based scores can range from 300 to 800. The higher the number the better.In general terms, borrowers with reasonable credit typical have FICO® scores, which range between 600 and 800.

Company specific score cards

Very often creditors will use a credit bureau score together with an in-house score card, where they build their own credit score to aid in their decision making process.

Creditors will take different factors into consideration when building a credit score, based on the company’s specific credit granting policies. These scores differ between lenders and may even differ between the type of credit you apply for e.g. home loan, credit card etc. Often lenders will make use of credit bureau data, their own internal data and affordability data, such as the ratio of installment to income, to build a company specific credit score.

Why does my credit score change?

Your credit score is dynamic, it can change monthly as new information for the accounts you hold is loaded to your record. It is important to note that a minor change to your credit score is not likely to affect your ability to gain access to credit. However, a significant change can occur if negative information such as a judgment or serious payment default is loaded to your profile.

What minimum credit score do I need to gain access to credit?

There is no minimum credit score. Companies will take different factors into account when making the decision to grant credit, depending on their specific credit granting policies and appetite for risk. The acceptable credit score range is specific to the company that is granting you credit. So, if one company declines you for credit this does not mean that another will also decline you for credit.

Why is it important to use a credit score in the credit granting process?

A credit score looks at many different pieces of information and takes a fair view of both positive and negative information. This helps lenders in making responsible and impartial decisions about granting you credit, by removing bias in the credit granting process. It also improves the speed in which the decision to grant credit can be made.

Remember, a credit score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score. The value of the information lies in looking at all the pieces of information collectively.

The importance of any factor depends on the overall information in your credit report. What is the general impression of your credit record? Does it reflect poor payment patterns or is it showing you stick to your payment obligations.

For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score.

Thus, it’s impossible to say exactly how important any single factor is in determining your score – even the levels of importance shown here are for the general population, and will be different for different credit profiles. What’s important is the mix of information, which varies from person to person, and for any one person or market over time.

Your FICO score only looks at information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

While your credit record and the resulting score is important, creditors look at many things when making a credit decision including your income, your expenses, how long you have worked at your present job and the kind of credit you are requesting.

Your score considers both positive and negative information in your credit report.

Black listed? Check your name

More than 25 million people are listed at one or more credit bureaus, the National Credit Regulator (NCR) said on Tuesday.

Peter Setou, NCR senior education and strategy manager, said in a statement that the data from credit bureaus registered with the National Credit Regulator indicated that more than 25 million people were listed in South Africa.

Eighty percent of the consumers listed had clean records while 20 percent or about five million consumers had one or more adverse or default judgment entries against their names.

Setou said these were the so-called black-listed consumers. Early indications showed that more than a third of them stood to benefit from the removal of adverse data as required by regulations. It was important for consumers to check their credit record at credit bureaus.

He said the National Credit Act required credit bureaus to remove information on a number of small debts and paid up judgements by June 1 this year.

He said that since the data cleansing regulations were part of a once-off process, it was vital that consumers check that the information on their records was accurate.

“We encourage consumers to contact the credit bureaus and request their credit reports. This will assist in verifying whether the information which had to be removed is actually removed,” he said.

Other data submitted by bureaus suggested that blacklisted consumers had on average three accounts listed next to their names.

Setou urged consumers to check their records, saying 75 percent of cases had been resolved either in favour of the consumer, or the data had been removed due to the bureaus being unable to verify the entry with its source.

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