When it comes to your credit profile, not all defaults are created equal.
Understanding the difference between being in arrears, having an adverse listing, or facing a judgmentcan help you protect your credit score - and improve your chances of getting a home loan approved.
Under the National Credit Act (NCA), every credit provider is required to report your payment behaviour to the credit bureaus. This record forms the backbone of your credit score and directly affects how banks view you when assessing a bond application.
Let's unpack the three main levels of default, from least to most severe:
1. In Arrears – The Early Warning Stage
What it means:
Being in arrears simply means you've missed one or more payments on an account. For example, if your credit card or personal loan payment is 30 days late, you're considered in arrears.
Severity:
This is the least severe form of default. It's a red flag to lenders that you may be struggling with cash flow or organisation, but it's often reversible if you act quickly.
Rectifying it:
- Catch up on the missed payments as soon as possible;
- Contact the credit provider to make a payment arrangement; and
- Once the account is brought up to date, the arrears flag will fall away and your credit score will gradually recover.
Impact on your bond application:
Banks will see recent arrears as a temporary risk, especially if you've since paid up and maintained good standing. If you can show consistent repayment for three to six months afterwards, it's unlikely to cause a long-term problem.
2. Adverse Listing – A Serious Credit Warning
What it means:
An adverse listing (sometimes called a "default listing") is reported to the credit bureaus when you have failed to make payments for a longer period - generally three months or more - and the account has been handed over or written off by the credit provider.
Severity:
This is a serious warning flag to all lenders. It tells them that you've defaulted beyond short-term arrears and that recovery attempts have failed.
An adverse listing can remain on your credit report for up to two years (if paid) or longer if unpaid.
Rectifying it:
- Settle the outstanding account or negotiate a settlement with the credit provider;
- Request a paid-up letter confirming the debt has been settled; and
- Submit this letter to the credit bureaus to update your record.
Impact on your bond application:
Banks view adverse listings as a sign of higher risk. Even if settled, the listing can reduce your credit score and limit your ability to qualify for a home loan - or lead to a higher interest rate.
However, if you can show a clean repayment history after settlement, lenders may reconsider within 12–24 months - and sometimes, depending on your total credit behaviour, will approve the loan immediatley after payment of the handed over account.
3. Judgment – The Legal Stage of Default
What it means:
If you ignore payment demands or fail to honour an account, the credit provider can take legal action. When a court rules against you, this becomes a judgment - the most severe form of default.
Severity:
A judgment means the matter has moved from a credit dispute to a legal debt enforcement process. It appears on your credit profile and remains there until it's rescinded (cancelled) by the court.
Judgments can remain visible for five years or more if unpaid.
Rectifying it:
- Pay the debt in full or reach a settlement;
- Request a letter of satisfaction from the creditor confirming payment; and
- Apply to the court for rescission of judgment - only once rescinded can it be removed from your record.
Impact on your bond application:
Banks are extremely cautious with applicants who have judgments, even if they're old or settled. You'll generally need to wait until the judgment has been formally rescinded and your credit record updated before applying for a bond.
The Role of the National Credit Act (NCA)
The National Credit Act (NCA) was introduced to promote responsible lending and borrowing in South Africa. It sets out strict rules for how credit providers must assess risk, report payment behaviour, and avoid what's known as reckless lending - granting credit to someone who is already over-indebted or in default.
Under the NCA:
- Lenders are legally required to check your full credit record before granting new credit;
- If you're currently in arrears, have an adverse listing, or a judgment, the Act prevents them from approving new loans until the default is resolved;
- Even if you've entered a payment arrangement with the bank or its attorneys, the account is still considered in default until fully settled and updated at the credit bureaus.
- Extending further credit to a consumer in default could be viewed as reckless lending, which exposes the lender to legal and financial risk - and potential penalties from the National Credit Regulator (NCR).
For this reason, even well-intentioned payment arrangements can delay your ability to qualify for a home loan. Until the default is cleared and your credit report reflects it as paid up or rescinded, banks are obligated to decline or defer new lending.
The NCA's goal isn't to punish consumers - it's to ensure that both borrowers and lenders act responsibly, preventing people from taking on debt they can't afford and protecting the broader credit market from unnecessary risk.
What To Do Next
Not all defaults are the same - but they all leave a mark.
By understanding the three levels of default, taking corrective action early, and knowing your rights under the NCA, you can rebuild your credit standing and move closer to homeownership.
If you're in default, or have been in default, and looking to purchase a home, contact me via the link below to discuss your way forward.
