Not paying on time makes it difficult to secure future loans, writes Isaac Moledi

It appears that we are entering difficult times of high interest rates and inflation.

For consumers in debt and those who cannot control their finances, this will be a tough period.

While the financial environment urges consumers to exercise good credit discipline, the credit market and job environment pose challenges to many.

Finding a job presents the inexperienced with a Catch 22 situation; they need experience to get a job, but without a job they cannot gain experience.

The same applies to credit. To secure a home loan or credit card, you need a good credit history. And to get a good credit history, you need to pay for your loan or credit card on time.

According to experts, credit histories were originally developed as a financial tool to help lenders assess whether consumers would pay their debts.

Today it is being used as a screening tool for everything from jobs to insurance rates.

An inadequate, poor or nonexistent credit record can make it difficult to get a house or a car, or to pay insurance premiums.

"When you apply for a loan, credit card, car finance, cellphone contract or furniture, creditors look for two things," said Allister Long, managing director of Powerhouse Financial Services.

"Firstly, your ability to repay a loan based on your previous employment and secondly, your salary and credit history."

Long said that life actually costs more when you have no access to credit.

Either you do without possessions such as cars or washing machines until you save enough money to pay cash for them or you end up paying higher interest rates.

A credit record reflects on your ability and willingness to repay debt on a regular basis.

It contains and reflects all the payments on accounts, default information, collections for debt, court records, insolvencies and disputed claims.

Despite full implementation of the new National Credit Act this month, which aims to protect consumers, credit bureaus will still store credit record information on all customers.

They will still list the total amount of credit offered and track the behaviour of managing that credit.

If you thought the act would protect you against being negatively listed by credit bureaus, think again.

So get out of the rut and raise your credit score.

How do you do it? Long says:

l Pay bills on time. Payment history makes up 35percent of your total credit score. Missing just one payment can hamper the process.

l Reduce credit card balances. A heavily-weighted factor is how much you owe on credit cards relative to your total credit limit. Keep balances at or below 25percent of the credit card limit.

l Don't close old accounts. With today's scoring methods, it could actually hurt your credit score.

l Avoid bankruptcy at all costs because it is recorded for up to 10 years.