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How to get loans if you’re blacklisted with bad credit

The credit situation in South Africa is going through a difficult time as over 80% of the population can’t even afford to apply for one. Most people don’t own their own land and this cuts the way to a good credit because they don’t have anything to offer as collaterals.

According to a recent study, over 90% of the wealth of South Africa is owned by 10% of the population (most of them white), leaving the indigenous black population in poverty and without any chance to a better life.

This situation has deep roots and it’s a direct result of the South African politics in the latest decades. Most of the black population leaves at the outskirts of cities, in poorly constructed structures, without access to modern day’s comforts, sanitation, or even education.

To top things off, the ones who manage to get a good education, don’t have the necessary funds to start a business and don’t have access to good funding resources. So, you can see why there aren’t that many local businesses, built by locals and addressed towards the black population.

Besides the lack of collaterals, South Africans also run the risk of being blacklisted with bad credit if they miss their payments. Considering the situation, you can only imagine that this is a common occurrence. So, we put together a guide to help two types of people: South Africans who want to get out of debt and launch their own business and people who want to understand the local business environment.

Avoiding Debt In The First Place

Someone wise once said that prevention is the best treatment, and you can see why this applies to one’s financial situation just as well. If you have the possibility to avoid getting in debt, then this is the way for you, regardless how difficult!

Below I listed some resources you can use in order to avoid collaboration with a credit institution.

Your own Savings

Many people tend to keep their savings apart from their business to have something to land in the case the dream is shattered. This can be seen as safe behavior, but it can be the very reason why the dream falls.

If you go to a credit institution and ask for a loan instead of using your savings, you risk the possibility that you end up in debt because you couldn’t pay your monthly rate. Since the loan you took was for starting the business, you’ll probably be still in the development phase which is not known for profits. This means that you won’t be actually producing an income to keep you and the business alive. And by now, the savings will probably be used to get out of debt.

However, if you do use your savings to start the business and you run out of money, you already know if the business is viable. You should also have a well-designed business plan and something to show for when you apply for a credit.

And yes, you may still end up in collaboration with a credit institution, but you are moving towards a more profitable phase in the business and the chances of you ending up in debt are lower.

Investors

Another way to stay out of debt and still get a business running is by finding people interested in investing in your dream. Still, this requires a working concept or at least a very well-designed business plan that will convince interested parties of their own profit in the collaboration.

Finding investors is a delicate task and requires lots of networking and lobbying, but there are also online platforms and specific institutions that can help you get to people a lot easier. These work as an intermediary between people who are looking for their next great idea to invest and people who have great ideas but lack funding.

Crowdfunding

Crowdfunding is a fantastic way to launch a new business, but it may be inaccessible to people who come from the lower circles of society in South Africa. However, if you have access to such a platform and you have the possibility to put together a killer campaign, there is a great chance that you’ll get the funds you need and more.

Picture courtesy of Pakwired.

Crowdfunding is the go-to resource when you can’t get a loan from a bank or you can’t find an angel investor. It’s also very easy to find a platform that will help build your dream as there are several dedicated sites in the online world (you can read about the most popular platforms here).

These are just a few ways to make sure you won’t end up in debt and on a blacklist just because you had the dream of starting your own business. With a bit of creativity and great ideas, you may find more ways so don’t give up, keep looking.

How to get un-blacklisted

First, it’s important to make sure you are blacklisted as some scammers just want to scare you into paying more. For this, you just have to do a credit check. South Africa’s credit bureau is obliged to give every citizen one free credit check per year so you should take advantage of this opportunity.

Sadly, it seems that not that many people know about this possibility as only 3% of the 25+million people who have a credit will do this check. Most wait until the last minute and discover that they are blacklisted when it’s a bit too late (when a loan application is refused because of this reason).

To make things simpler and increase the level of access to the credit check option, the largest credit bureau in South Africa allows users to get information on their credit worthiness via SMS. Even more, you don’t need to own a smartphone to be able to read the information. This plays well with the level of technology penetration in South African countries here only 37% of people own and use smartphones.

Finally, if you are not interested in learning about your financial health, and you don’t want to apply for a loan, it’s important to do this check anyways. Credits may have been applied in your name by scammers and now you could be on several blacklists. This is something that will affect your serenity at a certain moment in life so you must be careful.

What to do if you are blacklisted?

First, it’s important to understand what being blacklisted actually means as for many people, this word is extremely scary. So, if you are blacklisted, it just means that your credit profile has some negative information posted there by one of the major credit bureaus: Transunion Credit Bureau or Experian Credit Bureau.

While it may not seem like a big deal now that you know what it is, being blacklisted will still be a hindrance on your day-to-day life as it will prevent you from getting any loans from financial institutions. This means that, if you are ready to apply for a house loan and you’re blacklisted, it will be a lot more difficult to get a positive reply.

Moving on, the most common blacklisting info that can be on your credit profile are (listed in the order of their importance):

  • Default listings
  • Judgments
  • Trace alerts
  • Administration
  • Sequestration

But there’s no need to worry too much (just yet). If you are on someone’s financial blacklist, there are some actions you can take to reinstate your credit worthiness. First, if credits have been applied in your name, without your knowledge, talk to the authorities. This is a felony and you shouldn’t be the one to suffer the consequences.

Now, if you are blacklisted because of your poor payment history or anything else you did, this is something that will shine a negative light on your profile as a future creditor. So, even if you have debt, you must make sure to improve your profile.

For instance, if you have any judgments on your credit profile, try to settle them. According to the Credit Act Amendments, if the judgment was settled the credit bureau must remove the listings.

Besides judgments, default listings are just as heavy on your credit score. So, if you have any, try to get them removed (at least temporarily). It’s best if you can bring the accounts up to date or if you can settle them, but if this is not a possibility, you still have the chance of negotiating with the credit provider for a temporary removal (usually about 12 months).

Still, the best way to get un-blacklisted is to pay all your debt and work on clearing your credit score. You should know that this won’t happen overnight and it will be a while until you’ll be able to apply for new loans, but there are ways to improve.

How to improve your credit score

Your credit profile is nothing more but your history as a creditor and it is mostly based on your payment history. So, even if you’re in debt but you have a great payment history, you can still be eligible for one more loan.

But, if you’re working on improving your score after you’ve been blacklisted, it’s important to know how long this information will be on your profile:

  • Payment history can go back to two years
  • Adverse listings varies from 2 to 5 years
  • A judgment will stay with your credit info for 5 years

Now, to improve your score, you should get in touch with all the credit providers and bureaus and ask for a confirmation settlement. Also, try to get in touch with the lawyers that covered the judgments on your profile and notify them that you have settled the account while asking them to rescind the judgment.

You should also check the Notifications section when you perform a credit check. If you find any ‘slow payer’ notes or default listings, try to get them removed by contacting the credit provider. Mention that you covered your debt and that the account has been settled. Still, you have to be prepared for a negative reply with these – credit providers have no obligation to remove these noted fast than specified by the law.

How to Clear your Payment History

Sadly, there’s not much you can do here as this is kept for two years. However, if you want to continue the good work and hope for the best, you can start fixing the issue with a small credit (one you know for sure you can afford). This is important for your Payment History because it will add credibility to your account. It also helps to make advanced payments and settle the account before its due date.

The other way to boost your credit score is to wait it out. As the time goes by, your payment history sheds the bad months and improves with new periods when your payment score is perfect. In about 6 to 8 months, your credit score will be perfect.

Finally, you may get lucky and get some governmental help like it happened with the Credit Amnesty (from 1 May 2014 to 31 June 2014). During this initiative, all records that followed a specific pattern were cleaned and people didn’t have to wait for their credit score to be boosted.

How to get a safe loan

In a country where corruption is still in power and only companies that work with the government manage to make some profit, it’s difficult to consider getting a loan. Still, if you do, you must make sure you get one that is safe and won’t cause any problems along the way.

For this, you need to follow a few simple and clear rules when you choose the institution. We listed the most important ones below so, if you want to know how to get a safe loan, take a look.

1. If it’s too good to be true it probably is

In a society where poverty reaches alarming rates, there is lots of room for scammers who try to make a buck at the expense of people who don’t have a financial education. While we agree this is a very low way of making money, there are people and companies that use these practices with success so you have to be wary of the signs.

For instance, if a credit company mentions they accept blacklisted people or that they won’t be doing any credit check, then something is wrong. No legit company that knows how the world of finances works will accept these conditions! If you get such an offer, you should run as far away as possible as this company is operating illegally.

A legal company in this niche must be registered with the National Credit Regulator so you can run their credit. If they are not registered, they won’t follow the rules put in place to protect you from huge interest or fee scam.

2. Don’t trust just anyone

When you apply for a loan, it’s best to choose institutions you know. For instance, if you’ve been working with a bank for various transactions, this can also be the one to grant you a loan for your business. If you don’t qualify, you can ask family and friends for recommendations but you should always do your own research.

3. Don’t apply for online credits

Many South African people were the victims of an online scam, where they agreed to register for an online loan that promised far better conditions than any bank. This goes hand in hand with the first condition: if it’s too good to be true, it probably is.

However, people trusted the email they got because the fraudster used the logo and name of a legitimate bank. The email looked professional so people didn’t see why they should be wary of anything.

The best way to check if a loan offer is legit is by checking the National Credit Regulator registration (NCRCP) number. This has to show up in the email and if it doesn’t, it’s most definitely a fraud attempt. Still, if you find a number, go to the Regulator’s website (www.ncr.org.za), find the name and number of the institution that presumably sent you the email and call to check for the validity of the offer.

4. Read the Offers Carefully

Another scam that’s quite successful in South African countries is the case when someone thinks they apply for a loan, but they are actually registering to a service that has a monthly paid subscription. These are phone companies that send offers that sound confusing, making people believe they apply for a very advantageous loan.

In fact, you are subscribed to a telephonic service and, if you refuse payment, you’ll start getting threatening letters. Sadly, the practice works and there are no clear rules to how to stop these scammers.

Another way to fool people who are desperately looking for a loan because banks won’t grant them one is to use company names that contain the word ‘loan’ (for instance ‘Loan Hub’ or ‘Loan Scout’). These are only offering advice on how to get a loan, but they’ll charge you for this service every month. And, just like the scam phone companies, if you refuse to pay, you’ll get threatening letters and emails.

Overall, in order to get a safe loan outside a bank institution, it’s very important to be careful with the conditions. Even more, you must check if the institutions that come with tempting offers are legal and of good faith.

How to manage your repayments and future finances

Once you manage to get out of debt and boost your credit score, it’s best to make sure you’ll stay on top of things from now on. As, regardless of the fact that you need a loan for your business or you need one for personal use, your credit score will be important.

Below are a few important pointers that can help you stay out of financial problems again:

Analyze your situation

Before you decide on taking on a new loan, make a thorough analysis of your financial situation. It’s important to register all your income sources and calculate your expenses to make sure that you will be able to afford the monthly repayment. This is not that difficult to do and there are even tools that can help you with this.

Manage your spending

If you don’t keep an accurate record of your spending, you may not even realize that you’re not being smart about it. It’s normal to have a few guilty pleasures, but it’s important to know how much these affect your financial health.

Track your spending record for at least 3 months and analyze your spending patterns. Can you see any black holes or expenses that could be removed? You can make a temporary cut from certain activities in order to keep your credit record clean.

Don’t delay any payments

Regardless of the fact that we’re talking about bills, bank loans, or subscriptions, you should make sure all your payments are done on time. Any delay can escalate and can stain your credit record or have a negative effect in a different way. Not to mention, that any delay is penalized so you’ll end up paying more.

If you have a lot on your mind and the bills pile up on your desk, use a calendar app to make a bill payment schedule. Set the notifications with a few days before the payment deadline expires so you’ll have plenty of time to take action.

Overall, it’s important to keep a healthy balance between your income and expenses in order to have a good financial life. This will help with both the credit score and your general state of well-being. Finally, while South Africa is still a region in full development and there are many issues to sort out, there are a few great institutions that can help with your financial crisis. So, out advice is to always think straight and always use the tools at your disposal to be informed of the changes that happen. It’s never wise to make a financial decision when you’re desperate!

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