MONEY CLINIC | I am under debt review. What happens to my credit report afterwards?
It is important to continue monitoring your credit report for the next six months after leaving the debt review. If you see any paid payments appear, report them immediately to the credit bureau.
With many South Africans struggling to make ends meet and keep their credit records in good shape, it’s no surprise to consider a debt review to resolve a debt problem. But what exactly are the implications of the process on our credit records?
According to Sébastien Alexanderson, founder and debt advisor at National Debt Advisorsone of the main determinants of whether your credit application is approved or rejected is a credit file – arguably the most important aspect of any credit transaction.
Alexanderson explains what a credit report is and the impact a debt review has on your credit report.
What is a credit report and why is it important?
If you’ve ever taken out credit, whether it’s a loan, credit card, chattel account, auto finance, and surety, you’ve probably heard of a credit report or a credit score. While your credit score is a consolidated assessment of your creditworthiness, your credit report is the detailed and objective record of all your credit transactions that is used to determine credit score.
Compiled by registered credit bureaus, your credit report is considered an unbiased measure of your financial responsibility and can be used in a variety of life situations, from opening a clothing account to buying a home and even applying for a new job.
What happens to your credit report when you undergo a debt review?
You are declared over-indebted and reported as a debt review client to the credit bureaus during your debt review. This prevents you from taking out more credit, as the debt review aims to help you clear existing debt.
Once the debt review process is complete, a debt counselor will issue a clearance certificate. This can be used to remove the debt review indicator from your credit report update and reset your credit score to zero.
How long does it take to obtain a debt clearance certificate?
Debt counseling is a legal and regulated process and therefore, like any other legal matter, it can only be formally closed through a court proceeding. Once you have repaid all of your debts and your debt counselor has requested and received your clearance certificate, they have seven days submit it to the credit bureaus to clear your file.
The credit bureaus themselves also have seven days to remove the debt review flag from your file and update on their end that your debt review file is closed. The whole process should therefore take about 21 days.
Life after the debt review, the window period
Once you have completed your debt review program, all debts that have been paid through the debt review should show as “paid” on your report, and your credit score should be reset to zero. The only record that appears on your credit report after your clearance certificate is issued is your payment history which may remain on your report for up to two years.
That’s why it’s important to continue monitoring your credit report for the next six months after you exit the debt review. If you see any settled payments showing up, report them to the credit bureau immediately, says Alexanderson.
Re-entering the credit market: a beginner’s guide
Due to the devastating impact of over-indebtedness on our mental health, debt counseling is often a lifeline at a time when you need it most. It’s like being rescued from near drowning and then receiving free swimming lessons to take with all the experience.
This is one of the main benefits of going through the debt review process. As a debt review client, you come out of the debt review process with an increased knowledge of the importance of sound financial habits like budgeting, saving, investing, and underwriting. of insurance. With these skills in place, you are now ready to start over and face the scary world of the credit market once again.
However, before diving into the depths, remember that your credit report is now at zero; therefore, you are still not ready for major purchases on credit such as a car or a house. So if you want to acquire more credit, start slowly and monitor your credit movements and their impact on your credit report.
Questions may be edited for brevity and clarity.