Newsflash: blacklisting isn’t actually a ‘thing’

Last updated on 6th February, 2024 at 09:06 am

Anyone who’s ever had credit in their name knows that mismanagement can land them on lenders’ ‘blacklist’ – but does this really happen the way we think?

In decades past, the term ‘blacklisting’ was often used as a scare tactic to drive credit users (for example, you – the consumer) to settle outstanding debt. You’d hear the term and likely imagine your name being added to a list of serial offenders that credit providers wouldn’t touch with a 10-foot pole.

In reality, it referred to negative information about a lender on their credit record – during an era when bureaus only collected negative data.

“This status [was] a result of a consumer failing to meet their financial obligations, such as not paying bills or loans on time,” says Afua Darko, Head of Business: Sanlam Credit Solutions.

The implications? It would become a lot more of a challenge for an individual to gain the trust of a lender and access more credit.

“[This is because] financial institutions use credit records to assess an individual’s creditworthiness,” explains Darko. “Being blacklisted [would’ve made it] challenging to secure loans or credit cards, and individuals may [have faced] higher interest rates. It serve[d] as a warning to lenders about the individual’s perceived credit risk.”

So, what changed?

Some experts argue that the term ‘blacklisting’ is a misnomer because credit bureaus don’t actually maintain lists of blacklisted individuals, says Darko. Instead, they provide credit reports that reflect an individual’s credit history.

In fact, in 2011, the National Credit Regulator, which regulates the credit industry in South Africa, discontinued using the term ‘blacklisted’ or ‘blacklisting’ altogether.

Credit records are more balanced

Now, credit bureaus – the organisations that store and issue credit records to lenders as part of consumers’ financing applications – store both negative and positive data about individuals (not so in the past), in many cases providing a more balanced picture of a person’s credit usage history.

Credit records are dynamic

“The nuances [of ‘blacklisting’] lie in the fact that credit records are dynamic and can improve over time as individuals settle outstanding debts,” says Darko. “While the term may oversimplify the credit assessment process, the core issue is the impact of a negative credit history on financial opportunities.”

Take care of your credit so it can work for you

When you’re looking to make one of the bigger credit applications in the future, ie mortgage bond, business loan, student loan, your credit record is a crucial piece of the puzzle to a successful outcome.

“The reality of credit records in South Africa highlights the importance of responsible financial behaviour,” says Darko.

So, what actions does Darko suggest to keep your credit record in top shape?

“Regularly checking [your] credit report for accuracy is crucial,” says Darko. She adds that understanding the implications of a negative credit record can motivate [you] to adopt better financial habits, such as budgeting, saving and addressing outstanding debts promptly.

Registering for your personalised Sanlam credit dashboard will help you to better understand and maintain your credit profile. Do it today – it’s quick, easy and free!

A qualified financial planner is best positioned to help assess your financial situation – including debt – and can help set you up with a financial plan for success. Book a meeting with one today, here.