Blacklisted, Creditworthiness, credit scores and Affordability.
Blacklisted, Creditworthiness, credit scores and Affordability. What are these terms? When applying for credit, these terms will usually pop up when a credit provider declines a credit application. Understanding what these terms mean will help you understand why you have been unsuccessful in securing new credit.
According to National Credit, a registered Credit provider needs to do in-depth investigations into affordability and creditworthiness. Most Credit providers will outright decline a credit application if a consumer has adverse information on their credit report and gets blacklisted. Should a credit provider fail to do these credit assessments, they will be risking granting credit recklessly. Approving credit recklessly is against the provisions of the Credit Act.
Credit providers all have different credit policies when assessing a new finance application. Some credit providers will have high affordability rules. Other credit providers will focus on a combination of the two. In this article, we will explain these different terms and, in the process, assist you with information to get a low-risk creditworthiness and affordability profile.
What is the term blacklisted?
The term blacklisted or blacklisting is a term to describe when a consumer is unable to qualify credit. These rejections are due to an impaired credit record and not due to the consumer being on a blacklist. An impaired credit record is when there is a record of non-payment of outstanding debts. Consumers with Impaired credit records have a low credit score. These debts include loans, credit cards, bonds, and clothing accounts. As this overused phrase "blacklisted" is being referred to there is, in fact, no blacklist out there. Consumers cannot get blacklisted as getting blacklisted does not exist.
What is affordability?
Affordability forms part of the New Credit Act regulations. It stipulates that registered credit providers can only approve credit if a consumer can afford the new instalment. Affordability calculations will include net monthly income minus living expenses and current debt obligations. The net disposable income will be used to calculate if the new credit application will be affordable. A credit application will get declined if there is not enough disposable income to cover the new credit agreement instalment.
Credit providers will also consider a consumer’s outstanding balances when assessing affordability.
Affordability forms a vital part of the credit assessment process. Credit providers will need the following information when assessing a new credit application:
- Gross and net salary.
- Monthly expenditure.
- Monthly Living Expenses.
- Proof of pay slips. Usually, credit providers will need the latest 3-month pay slips.
- Stamped bank statements.
- Supporting documents to prove any claims of receiving an additional income.
Credit providers will also look at a consumer's current revolving loans and credit cards available credit. Credit providers will decline a new credit application if the disposable income available would not cover all the current credit agreements should a consumer max out all the available credit.
Reckless lending forms part of the National Credit Act regulations. Credit providers are responsible that the consumer applying for new credit and can afford the new payments. The credit act regulations stipulate credit providers “take practical steps to assess a consumer or joint application income to determine whether a consumer has the financial means to pay the proposed credit instalment”.
To avoid a credit application getting declined in future ensure that the new instalment will be affordable. Having a low affordability figure does not mean you are blacklisted.
Is creditworthiness the same as being blacklisted?
Creditworthiness is a snapshot of how a consumer has managed their payments on current and past credit agreements. A consumer’s creditworthiness will tell a credit provider how likely a consumer will be able to repay the new debt. Low-risk consumers will have a high credit score and high-risk consumers will have a low credit score. A consumer will be regarding as blacklisted if any adverse reflects.
Credit providers measure creditworthiness by scrutinizing
- Credit reports - Get your Credit report free once a year.
- Credit scores - Credit Score Guide
- Payment histories
To get regarded as a low-risk creditworthy applicant ensure the following gets maintained on current accounts:
- Pay all accounts on time without any missed payments. This includes all credit agreements, insurances, DSTV, and cell phone accounts.
- Settle any doctors accounts as soon as possible. Collections are quick to list for outstanding doctor accounts.
- Keep outstanding balances low on all clothing and credit cards.
- Avoid applying for new credit and only do so if the need arises.
- Do not close accounts with a good history with high credit limits.
- Dispute and correct any inaccurate information in your credit report.
Being regarded as a creditworthy low-risk consumer is vital for future credit applications. Having a low-risk high credit score will ensure assets like homes get financed at low-interest rates. Being regarded as not creditworthy might be misconstrued as being blacklisted.
What is the difference between blacklisted, affordability and creditworthiness?
Being regarded as a blacklisted consumer looks at adverse listings. Affordability is the process of establishing if a consumer can repay a new credit application. Creditworthy assessments show the likelihood of a consumer being able to pay a credit agreement.
In the following example, we will illustrate the differences between blacklisted, affordability and creditworthiness.
John, a successful mine manager, has a good income but has never taken out any form of credit in the past. John applied for vehicle finance as the vehicle he bought in cash broke down. John could afford the new vehicle instalment but might get declined as there is no history to show how he managed past or current credit payments. In this example, John has affordability but will fail on creditworthiness assessments.
In another example, John has a good income but has several loans, credit cards, bonds and vehicle finance. Johns net disposable income is barely enough to cover current debt obligations. John has never defaulted on any payments and applied for a new credit card. In this example, John will have an excellent track record, good credit score and not be blacklisted. John will decline as his affordability is lacking even though his creditworthiness is excellent.
To get that approval for new credit facilities it is vital to show that there is no adverse (blacklisted), you have affordability and is creditworthy.
How to Improve and increase affordability effectively!
Credit providers will do affordability calculations to establish how much disposable income a consumer has after paying for living expenses and current debt obligations.
To improve the chances of getting credit applications approved increase affordability in the following ways:
- Manage your cash flow.
- Avoid or reduce spending on non-essential purchases.
- Reduce grocery spending by buying no-name brands and in bulk.
- Reduce transport costs by using public transport.
- Reduce balances on clothing and credit cards, ~reducing the balances will ensure a reduced monthly instalment due.
Tip! Banks will only approve a home loan application if more than 30% of the applicant’s salary is available for the home loan instalment.
How to Improve and increase creditworthiness effectively!
Creditworthiness is a snapshot of a consumer’s credit report which includes a credit score. Accounts that must get paid on time without any adverse will have a positive effect on credit scores and creditworthiness. To increase creditworthiness and credit scores ensure the following gets maintained:
- Review your credit report at least twice a year and dispute any inaccurate information.
- Pay all credit agreements on time every month.
- Reduce balances on all clothing, revolving and credit card accounts. Reducing debt strategically will improve credit utilization rations and will increase credit scores.
- Avoid applying for any unnecessary credit facilities. Many enquiries on your credit profile in a brief period will hurt credit scores.
In conclusion, when you work on your creditworthiness, there are two rules to remember. Keep account balances low and pay your accounts on time every month without fail.
Conclusion on Blacklisted, Creditworthiness, credit scores and Affordability
If you need more help on blacklisting, ITC clearance, credit clearance and affordability, please contact us. We take a practical, hands-on approach on each case and we ensure you are delighted with our services. Alternatively, please visit our blog for many other credit-related articles.
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