Article provided Experian
In the first quarter of 2022, Mike Anderson (NSBC’s founder & CEO) met up with Ferdi Pieterse (Experian Africa CEO) during The Business Show to discuss the newly launched campaign “How to become Financially Fit” and how Experian aims to help individuals and small businesses to recover from the past few years. Let’s see what they had to say.
Why is Experian working with the NSBC to drive financial education to SMEs?
In 2020, when the COVID-19 pandemic hit the world, Experian started a global initiative called United for Financial Health. The idea behind the initiative was to reach out to 100 million people through financial education to help them become more resilient and robust following the pandemic because the pandemic has had a devastating impact on everyone.
Being one of the larger enterprises in Europe, the Middle East, and Africa, we were looking for a partner in South Africa to help drive the international initiative locally. Through feedback from consumers, we found the NSBC and you were the ideal partner because you are focused on the audience we hoped to target which is SMEs. As we well know SMEs are the cornerstone of employment in South Africa.
How have SMEs been tracking from a credit perspective over the past years and what impact has the pandemic had on many of them?
SMEs have been hardest hit by the pandemic and the events that followed it. From day one of the pandemic, the enquiries for credit extensions and applications for credit from SMEs dried up. As the pandemic started to peter out the volumes of enquiries started to pick up and the market began to normalize but then in June/July we were hit again with civil unrest in South Africa and SMEs bore the brunt of the impact of the unrest. This double blow on SMEs has been difficult but we have seen an uptick in enquiries since October/November. This has seen us moving into a new phase of normalisation, but the lenders are still more cautious about who they lend to and what terms they extend to SMEs.
What have Experian’s credit insights shown you about the impact the last two years have had on consumers and their credit health in South Africa?
Through Experian’s consumer default index which measures the rate of first-time defaults, they saw in the second quarter of 2020 that the score peaked at 5.68. This is the highest score ever seen since the index was introduced. The score has been decreasing and has remained fairly stable at 3.45 with a slight downward curve.
This index is affected by different behaviours from the consumers. The first one is credit aversion. A lot of banks and other credit-lending facilities held back until they had more certainty about how the pandemic would pan out. This helped consumers to improve their credit scores on their credit history. The second one is that with lockdown people had to start to work from home and many are still working from home, and this has had a positive impact on people’s disposable income at the end of the month. Many individuals have used that extra disposable income to get rid of debt. Lastly, we have had a benign interest rate cycle which has helped consumers in terms of repayment of debt.
This leads to the new campaign, “how to become Financially Fit” and get back on the road to financial recovery. So, how does credit wellness affect us?
There are three key components to running a business on a day-to-day basis and to making it work. First is the capital that you put into your business, secondly, it is the cash that you generate out of your revenue, and what your debtors pay you, and thirdly, it’s the debt that you have. These three components are a critical part of the mix in funding a business.
The third component is often overlooked, wrongly understood, or incorrectly applied. When considering debt, we need to think of it as good debt or bad debt and what do we use it for. Bad debt refers to using the wrong type of debt for a long-term asset. Good debt would be a long-term debt on a long-term asset, but bad debt would be a short-term debt on a long-term asset.
In the business information part of Experian’s bureau, they create credit reports for many businesses. This report is fundamental and critical when talking about the funding mix of a business. This tool helps you with the day-to-day management, running and understanding of your business.
What is Experian’s role as a credit bureau?
The primary role of Experian as a credit bureau is that they exchange information and data with credit providers and they in turn feed us information on two levels. The main purpose of a credit bureau is driven by the national credit act. Experian is one of the key people through their credit reporting that ensures there is no reckless lending happening in the market to the consumer and that people don’t get overindebted.
The report that organisations get from Experian is the first step in the credit application process and they are the custodians of the data. Experian takes all the data and aggregates it into a meaningful report. This report is used by the credit providers to make informed decisions about who they give credit to. This is the part we play in the ecosystem. We’re not here to blacklist people but rather to give them the information to understand what their credit profile is all about. These reports help people to make informed decisions about who they do business with.
What is a more inclusive credit economy?
In South Africa, many individuals own and run SMEs, but they haven’t had the opportunity to partake in the formal financial system. They struggle to get their first loan at a bank or to have a line of credit extended to them.
At Experian, we hope to bring these credit invisibles into the fold of the formal credit ecosystem. By doing this, we hope to get them better terms for credit to help them build their businesses sustainably and give them access to lending and credit facilities when they really do need it, so they don’t need to turn to less desirable sources for funding.
What is the value of understanding your personal and business credit scores?
By understanding your credit report, you will be able to ensure that when you apply for a loan, the lender will have the most up-to-date credit information about you and will offer the best rate for the amount you want to lend. Knowing your credit score is as important as checking your bank balance and understanding your cash flow. You need to check that the data in your credit report is accurate and complete so that anyone who looks at your credit report gets the total story about your credit history. It is also important to have a good personal credit score because on some occasions the lender will need your personal credit score to give you the loan you seek.
What do you do if the information on your credit report is incorrect?
First, you need to request your business or individual credit report. Then you need to review it. If you find an inaccuracy, you can contact Experian and we will follow a dispute process. We will investigate the dispute with the credit provider. If they don’t get back to us after a set time, then we will rule the dispute in your favour and update your credit report to reflect the correct information. When logging a dispute, you need to give evidence that proves the information reflected on the credit report is incorrect.
How can you get a credit report?
For your personal credit report, you need to go to the Experian self-service online portal, www.mycreditcheck.co.za, and click on the purple block and then enter your details. When you fill in your phone number, you will get a one-time pin sent to your phone that you will enter and then you will create a secure password. You will answer three questions about your career and after that, you will get your credit report.
For your business credit report, the process is slightly different. You will go to the NSBC website and download the editable pdf and complete it with all your details. Then you will email it to firstname.lastname@example.org and you will get a report back in five working days through a managed file transfer site.
Here are some tips and practical advice on building a good credit reputation:
- Have a budget: There is a common saying which is “turnover is vanity, profit is sanity, and cash flow is reality”. It is therefore important to build a cash flow budget that looks at how cash comes into your business and how cash goes out of your business. Understand what it looks like and always try to stick to it.
- Be honest on your credit application or business report: When you apply for credit be honest and give as much detail as possible. This will help the lender make an informed and accurate decision based on the information you have supplied.
- Budget for debt: Look at how you are going to take your business to the next level and how you are going to grow and budget for the debt you may need. Also, remember to have a clear idea of what is good debt vs what is bad debt.
- Pay your accounts on time: Make sure you don’t miss payments. If you do run into trouble, don’t ignore the letters of demand and telephone calls. It’s better to have the difficult conversation from the first phone call and see how you can restructure the date and terms and then stick to the new plan.
- Don’t owe more than 30% of your budget. Make sure that the repayments you need to make in your business don’t go beyond 30% of the budget.
- Check your credit report: Remember to check your personal and business reports regularly. You can check your personal credit report for free on the Experian platform.
If you have any questions, you can get all their contact details on their website, www.experian.co.za