Young people splurging could be detrimental to your credit score, warns NCR

Young people are often known to splurge, ‘to spoil themselves’, but the National Credit Regulator (NCR) has highlighted the importance of responsible credit management.

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According to statistics from NCR, out of South Africa’s 27.46 million credit-active consumers, a significant portion includes youth with multiple credit agreements. Alarmingly, it says, the total value of new credit granted surged from R142.26 billion to R148.10 billion in the last quarter of 2023, indicating a rising dependence on credit.

‘’Youth spending patterns reveal a concerning trend towards high dependency on retail and clothing store credit. Many students, leveraging stipends or allowances from parents and financial aid, obtain credit facilities but often misuse them, leading to difficulties in meeting monthly payments. This irresponsible credit behavior can result in negative listings on their credit profiles, which not only hampers their ability to access future credit but also impacts their employability, particularly in the financial services sector,’’ said Simphiwe Mthembu, Manager of Education and Communication at the NCR.

“Good credit is a privilege that must be earned. Building a good credit history takes time and discipline, but it is essential for long-term financial health,’’ he added.

Mthembu urged the youth to avoid reckless and unnecessary credit use.

‘’While the National Credit Act (NCA) does not restrict youth from accessing credit, provided all regulatory steps like affordability assessments and credit checks are followed. The high cost of living and unemployment pressures drive many young individuals towards credit dependency to sustain their lifestyles. Peer pressure further exacerbates this issue, pushing youths into ill-advised financial activities such as online trading, gambling, and excessive credit card usage.’’

He says such behaviors can lead to poor credit records, which could be detrimental in future.

‘’ [This] will jeopardize their future employment prospects, particularly in sectors requiring sound financial standing. Negative credit listings not only reduce employment opportunities but also limit future credit access. For instance, securing a job that requires vehicle ownership becomes impossible with a bad credit score.”

To assist young people in managing their credit responsibly, the NCR provides the following tips:

1.      ASSESS THE NECESSITY OF DEBT: Before taking on debt, consider if it’s truly needed and explore legal alternatives.

2.      EVALUATE AFFORDABILITY: Only take credit you can comfortably repay.

3.      CHOOSE REGISTERED CREDIT PROVIDERS: Select reputable providers who offer credit suitable to your financial situation and explain the terms clearly.

4.      COMMIT TO PAYMENT SCHEDULES: Ensure timely monthly payments and avoid missing installments.

5.      COMMUNICATE IN FINANCIAL HARDSHIPS: Engage with your credit provider proactively if financial difficulties arise.

6.      EMBRACE FINANCIAL RESPONSIBILITY: Don’t evade debt obligations; face them responsibly to avoid future financial distress.

7.      AVOID UNNECESSARY STUDENT DEBT: Don’t burden your career start with debts incurred during studies.

 

Done By: Mitchum George