Blacklisting by credit bureaus – is it a thing?

South Africans commonly refer to being “blacklisted” by credit bureaus in the mistaken belief that if they behave irresponsibly with credit, such as missing a debt repayment, their names go into a “little black book” and they are automatically denied access to credit in future. But that is not how it works.

Fatgie Adams, director of credit risk solutions at TransUnion Africa, one of South Africa’s major credit bureaus, says the idea of blacklisting is an urban legend. “Credit bureaus don’t maintain a ‘blacklist’ of consumers. Instead, the bureau hosts your full credit profile, which is made up of various aspects and data points, to get a 360-degree view of you,” he says.

Adams says the notion of a blacklist goes back many years, when credit bureaus held only negative information about consumers. “It’s something that has always been spoken about but has never really existed. And it has really given bureaus as a whole a bad reputation, because bureaus don't just reflect negative information; we reflect positive information as well,” he says.

Another misconception is that the bureaus control who gets credit. The function of the bureaus is to gather and share consumer information, which they do through a central hub (read “How credit bureaus collect a wealth of information about you”). Whether you receive the credit you apply for or not is decided by the lender, or credit provider.

“Remember, the bureau doesn't award the credit – the lender does,” Adams says. “The bureau provides the lender with the data to make the decision, but the lender at the end of the day is responsible for granting credit and avoiding reckless lending.” (See “How does a credit provider determine how much credit I can afford?”)

Information collected for your credit report

The information on your credit profile may be divided into “soft” information, which gives lenders an overall picture of your financial personality and feeds into your credit report (see “What is my credit report?”), and “hard” information, which may immediately block any further access to credit.

The soft information indicates how responsible you are at handling debt, Adams says. This would include the range of credit products you hold, such as credit and store cards, personal loans, and vehicle finance; how you utilise the credit granted to you; your repayment history on the various products; and how frequently you apply for credit.

“For example, if you have a credit card, how much of the limit are you actually using? If you have a utilisation of 90 or 100 percent, it's not usually a good indication of future credit behaviour,” Adams says. “Another thing we record is how often you are applying for credit. One of the worst things you can do is apply at multiple lenders in a short space of time.”

Overlaid on your report are harder things, such as adverse classifications on your profile, Adams says. “If you have defaulted on any of your credit products, meaning that you missed your repayments to the point where the credit provider hands you over to their legal department, this would be an adverse flag that gets placed on your bureau profile. Other ‘hard’ information includes judgments against you and whether you have entered debt review. In the case of debt review, the National Credit Act (NCA) generally restricts consumers from taking on further credit while the process is active,” he says.

How adverse credit information is regulated

The law regulates adverse information that can be included on your credit profile. In relation to how long such information can remain on your profile, the NCA regulations provide the following:

• Adverse classification of consumer behaviour: “Relating to consumer behaviour and includes a classification such as ‘delinquent’, ‘default’, ‘slow paying’, ‘absconded’ or ‘not contactable’”. Maximum period: one year.
• Adverse classifications of enforcement action: “Relating to enforcement action taken by the credit provider, including a classification such as ‘handed over for collection or recovery’, ‘legal action’ or ‘write-off’”. Maximum period: two years.
• Civil court judgment. Maximum period: five years.

Andrea van der Westhuizen, head of operations at the South African Credit & Risk Reporting Association, says the credit industry applies the consumer behaviour classifications subjectively. “For example, the terms ‘default’ (you are in breach of the agreement), ‘delinquent’ (you miss scheduled payment deadlines), ‘slow paying’ (you are inconsistent or late in your payments), ‘absconded’ (your contact details have changed or you avoid attempts to contact you) and their interpretation may differ depending on data contributors or bureaus’ own classifications,” she says.

It is worth remembering that, although they may refer to your credit profile shared by the bureaus, credit providers have their own criteria on how they evaluate you.

“As provided in the NCA, a credit or service provider may determine for itself any scoring or other evaluative mechanism or model to be used. This means that a credit bureau score is not the same score that lenders will use to decide if you qualify for credit or a loan,” TransUnion says on its website.

Don’t let minor debt transgressions escalate

Importantly, a minor slip-up or single missed payment will not automatically block your access to credit, especially if you catch up the arrears as quickly as possible, Adams says. “A small bump in your profile will disappear over time, because your profile gets updated every month. Depending on the risk appetite of the credit provider, a missed payment will not mean that you aren't approved for finance, but you might pay a little bit more on your interest. If it is just a late payment or a short payment, the impact isn't as significant as you missing two or three months. What the credit provider typically looks for is a change in behaviour,” he says.

Adams emphasises that being declined credit is not actually a bad thing. “I know it has a negative connotation, but the way we view it is that a decline is sometimes a good thing, because, where you potentially can't afford to repay the debt, or you are already in a position where you have judgments or defaults to your name, giving you credit could just put you in a worse-off position,” he says.