How I racked up R45 000’s worth of credit in a day.
Our researcher, Sean Binedell, goes out to apply for store cards to see how much debt he can rack up in one day. The results were astounding.
Credit can be a ‘wonderful’ thing, sometimes necessary for business and certain lifestyles. The implementation of the National Credit Act (NCA) in 2006 was designed to ensure South Africans could not be taken advantage of by stores offering large amounts of credit to people who are not educated or disciplined enough to handle the responsibilities associated with managing credit.
The purpose of the Act is to:
- Promote a fair and non-discriminatory market place for access to the consumer credit;
- Regulation of consumer credit and improved standards of consumer information;
- Prohibit certain unfair credit and credit marketing practices;
- Promote responsible credit granting and use;
- Prohibit reckless credit granting;
- Provide for debt re-organization in case of over-indebtedness;
- Regulate credit information; and
- Establish the National Credit Regulator and the National Consumer Tribunal.
Moneybags decided to test the ability of a 25-year-old South African male to rack up credit through store cards of South Africa’s top clothing retailers. The results where astounding.
The required information for credit approval was as follows:
- Payment Option: 6 month payment plan (interest-free)
- Salary: R14 000
- Deductibles: R1000
- Expenses: R6500
- Disposable income: R7 500 per month.
- Debt-free with a perfect credit record.
A reference is required during the application for a store card. However, only Mr Price contacted my employer for a reference to determine if I indeed worked for the company and whether my salary details were correct.
Credit providers are required to check my credit rating with the banks to determine the amount of credit they will offer. My credit rating at the time of writing, according to TransUnion https://mytransunion.co.za/, is healthy, as I am yet to miss any payments or go into arrears with my credit card.
Here are the amounts offered to me:
|Mr Price||R5 300|
|Foshini Group||R10 000|
|Ackermans/Jay Jay’s||R5 000|
Combined with my healthy disposable income for someone my age and lack of debt, I was able to rack up over R45 000 in credit in one day. Only Mr Price and Woolworths required additional information to verify the details on my application form in order to be granted credit. Mr Price contacted my reference and required proof of address, while Woolworths required salary slips before I could open an account.
During the application process, the credit provider has to ensure that you can afford the loan. It is the duty of the credit provider to provide an assessment based on the information you gave to determine the amount you should receive as per the NCA.
However it is clear that the system is flawed. The amount of credit one can accrue with time on their hands and an addiction for shopping should be taken into consideration. This system also exacerbates damaging debt spirals for people who are now faced with a sudden influx of available resources that they are not accustomed to.
Stores provide consumers with incentives to sign up to store accounts in order to increase a loyalty to their brand by offering vouchers. However, these vouchers in my mind are often not worth the paper they are printed on because of the number of terms and conditions associated with opening the store accounts.
Stores make you jump through hoops to get the discounts and to add insult to injury, encourage you to spend more to qualify for the discounts. With Edgars, for example, you only a get a generous R500 off if you spend R2000 or more according to the voucher I was presented with. Most consumers can’t resist a discount and tend to spend the required amount to save a few hundred rands. To top it all these vouchers normally don’t apply to merchandise sale – pretty much the hunting ground of someone earning my salary.
So what’s the answer to beating the system? Should you still open a store card and are they the best way of obtaining credit? It’s certainly easy to open a store card – far easier than it is to obtain a credit card through a bank. At Moneybags we usually don’t advocate getting store cards as our opinion is that you should rather pay cash for the kinds of items you typically pay for using a store card. However, for those who don’t want to heed this advice we do have some tips to follow.
Moneybags store card saving tips:
- Don’t let the charge you interest: Typically 12 card options will generate interest charges up to 21%. If you need to open up a store account for the purpose of getting a credit record, remember to select the six month payment plan option. There are lots of stores that charge you 0% if you go with the six month plan. However, remember that if you don’t pay the balance off you could be charged interest.
- Ask about the extra fees: Some store card providers will charge you annual fees, initiation fees, card maintenance fees and card protection insurance fees. Make sure that you know what they are and see first if you can afford these charges.
- Don’t be bullied. Take the contract home rather than sign on the dotted line there and then. This will enable you to peruse the paperwork in the comfort of your own home without the store card promoter hassling you.
- Pay off your store card every month. Be disciplined so that you don’t fall into the debt trap.
Check your credit score regularly to ensure that your credit information is healthy and that you haven’t missed any payments with any stores. Companies like Transunion give you a free credit report a year.