Debt relief scam warning for South Africans

South Africans spend most of their take-home pay on debt, and debt levels are at record highs. This leads many to seek credit repair services, which offer false promises and overcharge customers for services that should be free.

A recent DebtBusters study revealed that alarmingly, South African consumers spend 68% of take-home pay to service debt.

DebtBusters’ Debt Index for Q4 2024 reported that South Africans who applied for debt counselling during the period had 42% less purchasing power than in 2016 when DebtBusters first started analysing data.

These consumers had unsustainably high levels of unsecured debt, and debt-to-income ratios were at their highest-ever levels among several income bands.

With that in mind, it makes sense why many South Africans would turn to services that promise to fix their credit score.

However, Manie van Schalkwyk, Ombudsman at the Credit Ombud, warned that consumers should avoid these credit repair services.

“Everyday advertisements appeal to consumers with poor credit histories. For a fee, they promise to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job,” van Schalkwyk said.

In some cases, they even offer to create a new credit identity for customers or to get them off the blacklist.

“There is nothing they can do that you cannot do yourself – often for free.”

According to van Schalkwyk, the only time you would even need the assistance of an attorney is if you want to rescind a court order.

He warned that if consumers do decide to respond to a credit repair offer, there are certain warning signs they should look out for.

These include requesting payment for a credit repair before any services have been rendered or not recommending that you contact the credit bureau directly.

People should also be wary of organisations that don’t tell you your legal rights and what you can do for free.

Finally, consumers should be cautious of organisations that advise them to dispute all information in their credit reports without verifying the validity of such information with credit providers.

“No one can legally remove accurate and timely negative information from a credit report,” van Schalkwyk said.

“But you can request a reinvestigation of information in your file that you dispute as inaccurate or incomplete.”

“Everything a credit repair organisation can do for you legally, you can do for yourself at little or no cost.”

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How to fix a bad credit score

Fortunately, Naked Insurance explained that there are several things South Africans can do to repair their credit.

First, consumers should get a free copy of their credit report from Experian, TransUnion, or ClearScore and analyse it to see what may be lowering their score.

“The report usually comes with some indications of why your score is the way it is. If you spot any errors, you can challenge them directly with the credit agency involved.”

With that done, the insurer advised setting up automatic monthly payments.

“Your payment history has a huge impact on your credit score, so it’s super important to pay all your bills on time.”

“Since we all tend to forget things sometimes, it’s a good idea to set up reminders in your calendar or automate your payments through your banking app. These quick setups take just a few minutes and can improve your credit score immediately.”

Naked recommended that users keep credit card spending under 30% of their total limit to quickly boost their credit scores.

“If you’re pushing the limit, try to pay off some of your debt. This will help lower how much of your credit you use.”

“Use a budget to track where you’re spending unnecessarily. This can help you from tapping into your credit card towards the end of the month to make ends meet.”

They added that consumers should limit the number of times they request a new loan or credit.

“There are two kinds of checks on your credit history: hard and soft inquiries. Whenever you apply for credit, a hard inquiry is recorded on your credit report, which can slightly lower your score.”

“To keep your score in good shape, limit how often you apply for new credit.”

In this regard, customers should remember that even companies that offer buy now, pay later options like PayJustNow or PayFlex might also run credit checks.

“So even though it’s interest-free, they might still run credit checks when you use their services.”

In addition to these “quick” solutions, Naked also suggested some long-term strategies for boosting credit scores.

This includes keeping old credit accounts open since the length of your credit history boosts your credit score.

However, they cautioned that this only makes sense if these accounts don’t have high fees.

Consolidating your debts can also be a valuable strategy to improve your credit in the long term.

“Juggling a bunch of different debts can get stressful and costly. Consolidating your debt can help by combining all your existing debts into a single loan with a potentially lower interest rate.”

“This would mean getting a new credit card or loan to cover all your current debts. This can simplify your monthly payments and may help you manage your debt better, which in turn could improve your credit score.”

By implementing these strategies, carefully managing even small amounts of debt and avoiding quick fixes that seem too good to be true, Naked said that consumers should be able to improve their financial health.

“Improving your credit score takes a mix of quick fixes and smart long-term strategies. Start by understanding your credit report, managing your debts wisely, and keeping an eye on your spending habits.”

“You’ll then be rewarded with a better credit score over time. This will give you more financial options now and set you up for long-term financial success.”