Cleaning up a bad credit score in South Africa is not difficult but it will certainly require time, patience and unwavering commitment.

If you’re tired of debt and want to clean up your credit then these 10 steps will help you do exactly that, in a tried-and-tested way that will ensure long term, sustainable success.

When you’ve missed payments on credit cards, loans, bills and store accounts your credit score will have suffered. This may mean it will not only be difficult to secure credit but the credit options you’ll be offered will come with higher interest rates and may even need to be secured.

Step 1: Evaluating your overall financial situation

The process of evaluating your overall financial situation will take some time and effort and your best bet is to take an afternoon off to get it done. You can do this alone but it is best to sit with your partner and go through your finances together.

Examples of documents you need:

  • 6 months’ worth of bank statements for all accounts
  • A copy of your last 3 credit card statements
  • Your payslips and record of any additional income
  • Copies of any savings accounts and investments
  • A copy of invoices pertaining to debts, loans and outstanding accounts
  • A copy of your latest budget (if you have one)
  • All your insurance policies (you can summarise these by monthly instalments)
  • A copy of your telephone bill and mobile phone contracts
  • Copies of mortgage, rental, municipal and other household invoices and expenses
  • Any cash receipts and slips from additional expenses and payments

This part of the process is not about budgeting or trying to make changes to debts and repayments. You simply need to add up your total monthly income and your monthly debt to see where you are overall.

Does your income cover all of your expenses? How much are you left with for savings and living expenses after all your debts are paid? Do you have more debt than you expected? Do you have sufficient savings to cover debts?

Look for patterns & major issues

Do you run out of money before your final few debit orders are set to run? Are you running into your overdraft too early on in the month? Are you paying too much towards insurance and services you do not even make use of?

Finding patterns and identifying major issues with your finances is a lot easier when you have everything laid out in front of you. Make notes, total expenses that fall into certain categories and use a highlighter to differentiate between swipes you make to see when and how you spend your money.

Make a note of anything that really stands out as you will be able to use these notes when you get to the budgeting and planning phase of this 10 step credit cleaning process.

Step 2: Request & review a copy of your credit report

You can obtain a copy of your credit report for free once a year from any of the four credit bureaus in the country. This credit report will contain a history or your debts and debt repayment habits as well as any defaults, judgements and outstanding debts that you currently have.

The four credit bureaus in South Africa are:

  • Compuscan
  • TransUnion
  • Experian PLC
  • XDS Pty Ltd
  • Getting your credit report using Compuscan

Compuscan makes use of www.mycreditcheck.co.za to provide South Africans with a free copy of their credit reports once a year. You simply need to visit the website, provide your South African ID number and a few other details, agree to the Terms & Conditions and you’ll be ready to go!

  • Free credit report from TransUnion

To obtain your free credit report from Transunion is simple an easy. All you need to do is visit their website www.transunion.co.za and you will be redirected to www.mytransunion.co.za. You then need to fill in your South African ID number, name, address, contain details and create an account before you will receive a copy of your credit report.

  • Get your Experian credit report online

Experian make use of their online system CreditExpert to allow you to obtain a copy of your credit report and see what lenders and service providers see when they check your credit. You can obtain a copy of your credit report from Experian by calling 0861 10 56 65 or sending an email to eza.consumer@experian.com.

  • Your XDS credit report from Credit4Life

You can obtain your XDS credit report from Credit4Life which is their consumer division and can be accessed via www.credit4life.co.za. You will have to create an account on their portal and this will provide you with 30 days access to your free credit report.

Step 3: Dispute & correct errors

South Africa is rife with identity theft and fraud which is why it is even more crucial for consumers to be able to obtain a free copy of their credit report and review it for any suspicious activity.

Make it a habit to get a copy of your credit report at least once a year, perhaps during Tax season, and get an idea of what “looks right” and what doesn’t.

Disputing errors on your credit report will take some time and you may have to provide proof of payment or any other form of proof that the account or debt recorded is inaccurate. Each of the above listed websites will direct you on how to lodge a dispute.

Benefits of reviewing your credit report:

  • Spot identity theft and fraud
  • Correct errors on your report
  • See what credit providers and service providers see when they do a credit check on you
  • Find out what your credit score is
  • Know exactly what rates and offers you deserve based on your credit score
  • Use the report to find out where you’re going wrong and address the issue
  • Review your debts and outstanding balances
  • Use your credit report as a tool to budget and plan

Step 4: Sorting & prioritizing your debts

A simple way to sort and prioritise your debt is to list them in descending order based on the balances that they carry. Your home loan will generally be at the top of this list followed by your car loan and any personal loans. Thereafter you may find yourself listing credit card balances and store account balances from Woolworths and Edgars.

Once you’ve listed all of your debts in descending order you will then be able to determine which debts you can easily pay off and which debts you will need a long time to clear. If you have a lot of credit card debt or find that you’re personal loan repayments are too high, make note of this.

How to prioritise debts

Pay off high interest debt first

High interest debt includes credit card debt, store accounts or any short-term loans that you may have. These are the loans that cost a lot of money in the short term because of the higher interest rates they carry.

Unlike your home loan or vehicle loan, which have lower interest rates these debts are very burdensome and can cause havoc with your finances. You need to make paying these debts off a priority but also be aware that paying them off in one go and cancelling multiple accounts within a short space of time will reflect poorly on your credit report.

Pay off debts with the lowest balance

This strategy is used to help you reduce the overall number of debts that you have which will make it easier for you to manage your debt and provide you with strong motivation to keep going.

You simply pay off the debts that carry the lowest balance and work your way towards the debts with a larger balance.

Consider refinancing or contact your bank to negotiate interest, loan term and repayments

Is refinancing an option? Do you have a large personal loan that you’re struggling to afford? Will a lower interest rate and longer loan term help you free up some money for day-to-day living? These are very important factors that you need to consider.

Perhaps you’re interest rate on your vehicle loan is too high based on your credit score? Perhaps you’ve been given a much higher interest rate than you deserve on the personal loan you took out to remodel your home?

Once you’ve decided that there is place for refinancing or room for negotiations call your bank and see if you can negotiate your repayments, interest and even loan terms. They will be more willing to assist than you might expect and such small changes can and will have a massive impact on your finances.

Cancel accounts & services you don’t need & downgrade

Once you’ve contacted your bank and successfully negotiated more suitable or favorable loan repayment terms it’s time to review all of your expenses and cancel any accounts that you do not use, need or want.

From unused gym memberships and golf memberships to premium banking accounts with features that you don’t even know about, let alone use. Perhaps you’ve taken out additional benefits with your medical aid and never make use of them or perhaps you simply don’t need that Nexflix account anymore. Perhaps you can shop around for cheaper insurance quotes for your car and household contents?

Maybe it’s time to cancel your mobile phone contract and opt for a pre-paid sim that you can better keep track of? Cancel all of the accounts and downgrade to more affordable plans to free up additional income and perhaps use this money to pay off debts or even put it away to be used as an emergency fund and avoid taking out more credit in the future.

Step 5: Creating a debt payment plan

Get your spouse & family onboard

Healthy financial habits and stellar credit histories are the result of a combined effort over an extended period of time not only by you but also by your spouse and family members.

It’s crucial to remember that whatever your spouse is doing will affect you as well and that getting them onboard to cleaning up your credit records and building a healthy financial future is key to success and long term sustainability.

Step 6: Drawing up a realistic budget & set financial goals

You can only draw up a realistic budget if you have followed steps 1 and 5 and know exactly what you owe to who and for what. Once you know this it’s time to list all of your debt repayments, debit orders and expenses based on category and then allocate any surplus cash to categories such as food and entertainment.

Using excel to create a budget

You can simple use Google to find hundreds of Excel budget tools for free. These will typically list a range of categories and prompt you to enter how much you will spend in each category every month.

It will then automatically populate a 6-month or annual version of your budget so that you can see how much you spend in every category per year as well as how much you will save and so on.

Using mobile apps to budget & keep track of spending

Mobile apps such as Moneysmart and Mint can help you budget and keep track of your everyday spending in a way that is easy and manageable over the long term. You may have to read reviews on more than one app and perhaps try out two or three before finding your perfect match.

Step 7: Pay on time every time

In order to ensure that you clean up your credit history and maintain a good credit score you need to ensure that you pay all of your financial commitments on time every time. This means that you need to ensure that debit orders never bounce, that loans and bills are pain on or before their due date.

Here are a few tips to help you repay all your debts & bills on time:

  1. Sep up a minimum payment debit order for all credit cards
  2. Set up a debit order for all clothing and store accounts
  3. Ensure all your debit orders run the day after you get paid to avoid having insufficient funds to repay them
  4. Contact service providers and move your payment date to the same day. You can then make all of your repayments in one go, every month at the same time
  5. If you have debit orders bouncing arrange to have an overdraft set up to prevent such expensive non-payment penalties

Step 8: Avoid any & all forms of new credit

Taking on new credit when you’re trying to clean up your bad credit is the worst thing that you can do. Even if you make the repayments on your new credit on time, the financial stress that additional credit will place on your budget is not worth it. You can instead use any surplus income you may have to repay existing debts or add the cash to a savings accounts.

Consider the following alternatives to borrowing:

  • Make use of savings or save money for the item or expense you’re looking at
  • Borrow from friends or family
  • Use your end of year bonus or Tax payout to make the purchase
  • Sell unused items on Gumtree or Olx and use the extra cash to make the purchases
  • Consider cutting out unnecessary expenses and using this money for your purchase
  • Consider earning additional income or working overtime to get the extra money you need

Step 9: Earning additional income & paying down debt faster

Earning additional income when looking to repay debt and clean up your credit score is one of the best things you can do. Sometimes it may not be possible to cut down on expenses any further. In such a situation the only thing left to do is increase your income.

Ways to increase income in South Africa:

  • Ask for a raise
  • Look for a new job that pays more
  • Take on nightshifts or work overtime
  • Find a part-time or weekend job
  • Become a freelancer
  • Start a side hustle that you work on after work and during the weekends
  • Work online by using a skill or knowledge that you already have
  • Use social media and affiliate programs to earn extra cash

Once you’ve started earning extra income you may be tempted to use this extra money for entertainment and other non-essential uses. To avoid this make a commitment to repayment debts or putting money towards savings each week.

If you are making additional repayments on your debts always ensure you contact your bank or lender and find out if there are any early repayment penalties and if so, exactly what these are.

You may find that amore financially sound move in such a case would be to put your money in a savings account and use this as an emergency fund.

Step 10: Monitor & adjust your repayment plan, budget & financial goals as you progress

Expenses, financial goals and debt balances change over time and therefore so should your repayment plans and budgets. You should aim to briefly review your budget at the end of every month but review on a more intricate level at least once every 3 months.

You also need to ensure you make time for a complete in-depth review once a year, preferably during the same time that you request your free annual credit report, and make any adjustments and changes that you need to.

Here are some examples of financial goals that you can set

  • Repay my credit card by next year June
  • Pay off my car by the end of the year
  • Save 30% of my income every month
  • Use my annual bonus to repay my personal loan
  • Have a 6-month emergency fund
  • Save a 20% deposit to buy a house by next year
  • Clean up my credit and get pre-approved for a home loan
  • Repay all store cards and cancel accounts by the end of next year

When it comes to cleaning up your bad credit, nothing will take you further than sheer commitment and willpower. You may, at times, need to remind yourself of what you’re trying to achieve and how you’re going to feel once you achieve what you’ve set out in order to stay motivated. This is why it’s important to write down all of your goals and glance over them when you need a motivational boost.