Children should be taught financial management skills - Van Rooyen

"It's never too early for children to start learning financial health skills - how to prioritise their spending and how to manage debt," Van Rooyen said.

Financial management from grassroots level

While at primary school, children should be encouraged to manage pocket money. Should they ask for an advance or a 'loan', parents should help them to work out a reasonable 'repayment' plan, and then ensure they stick to it. "This will help to instil the all-important habit of paying the correct amount owing on their accounts on time, every time - a trait that will be absolutely essential when they grow up and need to maintain a good credit record," explained Van Rooyen.

Van Rooyen pointed out that very few people in today's world do not require credit at some point in their lives - to purchase a house or a car, have the convenience (and security) of a credit card or a store account, or even to take out a cellphone contract. Parents need to educate and empower their children to achieve this. In fact, as soon as a child is old enough - and certainly once the child turns 18 - they should be encouraged to start building a good credit record.

Most credit providers - banks, stores and service providers - check an applicant's credit report before deciding whether or not to give them the credit they want. Without a solid credit record, a provider may not grant credit at all, or may limit the applicant to a far lower amount than is needed.

What is a credit report?

A credit report is compiled every month by a credit bureau using information provided to it by institutions that provide credit. Effectively, the credit bureaus maintain a database of credit-related information - good and bad - about every credit-active consumer in the country.

"If your behaviour is good and you pay the full amount owing on your accounts on time every month, this will be reflected in your credit report and it may help you to obtain more credit when you need it.

"But if your credit report shows that you don't always pay what you owe each month, it may work against you," Van Rooyen said.

Building a sound credit record

The sooner one starts building a good credit record, the better. However, TransUnion cautions young people not to go out and amass as much credit as they can, particularly if they are not going to be able to repay it as set out in the credit agreement as their credit report will reflect all the accounts that they pay in full and on-time, as well as any late payments or skipped payments. Their credit report will also show if any action has been taken against them because of unpaid debts. Any unpaid debts are known as "defaults". Young people should therefore apply for credit judiciously, and use it wisely.

TransUnion suggests young people do the following in order to start building their credit record:

• Apply for a store card with a low credit limit.
  
• Always try to keep the balance on the card below 30% of the limit.
  
• Ensure the correct amount owing is paid on time and in full every month - do not skip a month with the intention of making up the shortfall next month. Even this will reflect negatively on one's credit report.
  
• Having become credit-active, obtain your free credit report from www.mytransunion.co.za or phone the TransUnion call centre on +27 (0)861 482 482 and ask for it. This is to ensure your report reflects your payment history and behaviour accurately. Every consumer is entitled to one free credit report from each of the credit bureaus, once every 12 months.

For further information, go to www.transunion.co.za or www.mytransunion.co.za.