Knowing Credit: Managing your Credit [Part 1/2] Responsible Credit Use

Welcome back! In our last series we discussed your responsibilities in terms ...

Knowing your credit, Managing your credit by Compuscan

Welcome back! In our last series we discussed your responsibilities in terms of credit agreements, and what a credit provider must explain to you. We discussed the types of information included in a credit agreement, making payments on time, using internet banking and giving consent for a debit order, as well as the consequences of defaulting.


Definition of the week: INSTALLMENT

An installment is a sum of money paid regularly over a period of time. Your credit installment is the amount you pay (usually monthly) against the amount you are still owing.


Secured credit

Secured credit usually describes a home loan or vehicle financing. It is called secured credit because your house or your car are assets that are used as security for the loan. If you cannot pay your installments, the credit provider may take the asset away from you, and sell it to recover the money.

It is important look after that asset.  If you allow your new house or car to become damaged or broken, you will still have to pay the entire amount that you owe. Or if you try resell the asset, you won’t necessarily get a good price if it is in disrepair.

Damage and theft can occur unexpectedly, but you can take steps to protect your assets.

  • Make sure you have insurance. Check to see that your insurance covers events such as theft, natural disasters (like fires or flooding), 3rd party coverage, and cover for other types of damage.
  • Check that your credit life insurance policy covers the instalments or total payment of your debt in case of death or disability.
  • Stick to your maintenance plan for your car.

Unsecured credit

Unsecured credit is credit that is provided to you without an asset to secure it. This type of credit is usually a credit card, retail store card, or overdraft facility. While unsecured credit is a useful tool to have, you need to use it wisely. If your account is always at the maximum, it means that you are overspending. You need to make sure that you manage your credit so that it stays within your budget.

Here are some tips that will help you to manage your revolving credit:

  • Before you buy something, calculate what the actual cost will be once the interest is added.
  • Check your statement to make sure you know the true cost of your purchases, with the credit interest added. This way you can keep track of your expenses.
  • Try to pay more than the minimum amount of your instalment. This will decrease the interest and cost of your account.
  • Unsecured credit should not be used when you are in financial difficulty; this could cause you to spend beyond your means.
  • If your card has a PIN, make sure that you are the only person who knows it. Check that all purchases on your account statement were made by you, and contact your credit provider if you suspect fraudulent activity.
  • If you get a replacement card, sign it immediately and cut up your old card before you throw it away.
  • Should your card be stolen or become lost, report it to the institute that issued the card.

Helpful Hint: Go to www.mycreditcheck.co.za and sign up for monthly credit reports. These reports reflect your accounts, payment history, account types, instalments and account balances. If you sign up for alerts as well, you will get a notification whenever there is activity on your name.

Do you want to know how to better manage your loans? Come back next week to find out more!