JOHANNESBURG – Many students seem to be under false pretences that credit providers will not hold them accountable if they fail to honour their payments.
According to the Credit Ombud students need to steel themselves for the repercussions of reckless spending.
Just this week the National Credit Regulator announced that 189 000 consumers in the second quarter were added to the 9.34 million who have impaired credit records. This brings the total number of credit active consumers with impaired accounts to 47.5%.
Students have a greater ease of access to credit – Manie van Schalkwyk, Credit Ombud says that “all that is required is for the student’s parent to confirm that the student gets an allowance and they could be eligible for an account. Some [credit] limits range from about R500 to R1 500.”
Standard Bank, Absa and Nedbank provide student-specific credit cards. Arrie Rautenbach, Absa head of retail banking says, “we offer a student credit card to students who already bank with Absa, are registered full-time at an accredited tertiary institution and have an income or allowance of R200 per month or more.”
The Nedbank student credit card allows students to get up to 55 days interest-free if they stay up to date with their payments. Dharmesh Bhana, head of Nedbank’s youth segment says that if managed carefully “a credit card is a very convenient way of accessing revolving credit as you have instant access to credit up to a certain limit whenever you need it.”
Taking a more cautious view, Johan Maree, CEO of FNB credit says that the bank plays a minimal role in the student credit space because “students often have a sporadic income or no income at all which poses even more challenges compared to that of other markets in which a stable income is present.”
This is why van Schalkwyk warns that students “need to be wary of accessing credit which they may not be in a position to handle responsibly.”
Maree says that once a student finds it difficult to make payments they will discover that compound interest also works against them, making it more difficult to pay off credit.
Van Schalkwyk says that once a student fails to make payments they may acquire negative listings and place them at a disadvantage when it comes to seeking work, as employers may be hesitant to employ someone with a poor credit history. This could limit their future access to credit, she says.
Maree adds that “being deep in debt at a young age puts one at serious risk of not being able to pay the debt off” and that later this may push students to borrow more in order to maintain their lifestyle.
In Absa’s defence, Rautenbach says that the bank “lends prudently in line with the requirements and regulations of the National Credit Act relating to affordability. All applications are subjected to a credit approval process. ” He adds however, that not all credit is bad – a credit card can be used to build up a credit history.
“The benefits include becoming financially independent and being able to manage finances at an early age or improving your credit score early on that could open the door to many financial possibilities, such as purchasing a home or car at a low interest rate or receiving a larger bank loan in future.”
Bhana concurs: “used responsibly, the credit card can assist students to build financial fitness and their credit record.”
Tips for students
The Credit Ombud advises that students should learn about the pitfalls of credit and learn early how to manage their finances.
Here are some of the Ombud’s tips on credit:
- Do not rush into credit just because you have a part-time job
- Try and avoid entering into credit agreements and rather save for your purchases
- Always remember how you conduct your credit matters now can affect your whole future
- Avoid taking more credit than you can handle because you rely on your parents to help pay for your bills – they may not always be in a position to assist you
- If you do have accounts conduct them well, as this could help you get better interest rates when you purchase big assets such as your first car
- Keep a clean credit record so that your future job applications are not declined based on a bad credit history
- Check your credit profile regularly so that you can deal with any issues timeously – you are entitled to one free credit profile each year. Exeperian, Transunion, Compuscan, Xpert Decision Systems are some companies that offer credit history checks and are registered with the Credit Bureau Association.