Debt is an emotive subject and, as we emerge from two years of the pandemic, many South Africans find themselves more indebted than ever before.
In determining your credit score, the credit bureau employs a formula that takes into account your overall financial background and history, how much debt you have, and how you pay your bills. What is important to keep in mind is that it takes time to build your credit history, so it is advisable to begin constructing a good credit profile as soon as you begin earning.
‘Bad debt’ is any debt – generally unsecured – that is incurred to cover lifestyle expenses, or to purchase items that do not increase in value such as clothing, cell phones and groceries. This means that if you’re borrowing money to purchase luxuries, travel overseas or cover your day-to-day living expenses, you need to take serious stock of your finances and cut back your expenditure to below the level of your income.