What's the impact of a default judgment on your credit profile?

In the 3-month period between December 2018 and February 2019, the number of default judgments for debt recorded had increased by 3.5%. Do you know what a default judgement is and how it affects your credit profile?

At Libertine Consultants, one of the services we offer is credit analysis, which offers our clients a report of their credit history so they may understand how potential creditors view them. One of the first things a loan institution will look at is whether you have a default judgement.

What is a default judgement?

A default judgement is the result of going back on a credit agreement with a creditor, e.g. a bank, store, municipality, doctor, or anyone who extended you a line of credit. This happens when you fail to pay your accounts on time and don't communicate with your creditor to make a repayment plan.

When the creditor takes legal action, you will receive a summons. If you ignore the summons, fail to plead or don't appear in court, the creditor will continue to present the information to the judge, who will then likely grant a default judgement. This means the court now officially orders you to pay the debt.

What is my credit profile?

Your credit profile is a way for potential lenders to track your previous repayment habits to see how risky it would be to give you credit. As such, when you apply for any form of credit (i.e. home loans, study loans, buying furniture, opening a clothing account), the credit supplier will get in touch with one of the credit bureaux that operate in South Africa to get access to the information regarding your previous credit management behaviour that these companies have on file.

In short, they want to see if you paid in time, skipped any payments and generally stuck to your repayment agreements with other businesses that have extended you credit.

How does a default judgement impact my credit profile?

In truth, not positively at all. It will lower your credit score to the point where it is very unlikely that you will be able to get any credit at all. Potential creditors take this very seriously. A default remains on your credit report for two years or one year, depending on the description of the default.

Subjective classifications of consumer defaults remain for one year. Consumer default classifications where enforcement action is taken - such as bad debt written off or handed over, credit card revoked or repossessed - remain on your credit report for two years. A default judgment is the final step in the legal process and therefore has more implications than a simple default status. It remains on your credit profile for a maximum of 30 years and can only be removed after it has been paid-up in full.

What can I do to improve my credit profile?

It’s quite simple – don’t take out credit you can’t afford to repay, pay your accounts on time and, if you are already in the situation where you are in arrears, take it up with your creditor in person to structure a repayment plan. If you feel that your finances are out of control to the point where you cannot make this happen, get in touch with a debt counsellor, such as Libertine Consultants, so you can restructure your overall debt and make it more manageble.

There you have it – a concise look at default judgements and how it impacts your credit profile. Please feel free to get in touch with a Libertine Consultants representative if you would like to learn more about our credit services and debt services. We can help you to clear your credit record so you can pave the way for a prosperous financial future. In the meantime, keep an eye on the blog as we share more helpful advice on staying on top of your finances in South Africa in coming weeks and months.