Two in three credit applications are rejected. Michelle Dickens writes about this unwelcome outcome.
A substantial 10m applications for credit were submitted in the first quarter of the year, signalling consumers have exited their short hiatus from leveraging new credit. Back in the hard lockdown, wary consumers retreated from 12m credit hungry applications to a mere 5.8m applications per quarter. A loss of income and job insecurity the primary driver for loss of credit appetite.
Some 10m credit applications per quarter is par for the course, the average for the decade preceding the pandemic. What is not normal, is the high rejection rate. One-in-two rejections was the pre-pandemic decade average. Even in the Global Financial Crisis, only 44% of consumers suffered the pain of credit rejection.
Affordability is the base requirement; reckless lending has serious consequences for both the consumer and the credit provider. Affordability assessments analyses gross income, living expenses and existing credit extended to determine disposable income and ultimately the consumer’s ability to pay up each month.
The solution for “affordability rejection” has two elements, decrease expenses or increase income. Budget every month, budget every expense item, budget just to keep track of where the money goes – cents add-up and can be cut back. Whereas budgeting out expenses may feel more within your control, increasing your income for credit applications is also attainable as credit providers will consider joint applications or surety.
Security of income is another sticking point, particularly for those who are self-employed, commission earners or new-to-the-job applicants. There are a few ways to present a more appealing version of your credit-savvy self. Self-employed does not mean a single shared bank account for you and the business, this complicates your affordability assessment. Setup your personal bank account and keep the business’ transactions separate. The unpredictability of earning commission makes credit providers nervous – offering security, surety or a long-term history of earnings act as useful motivators.
Overcoming credit-score rejection requires an assessment of your personal credit profile, accessing your personal credit profile and interpreting the data.
Identity theft affects millions of consumers per year. According to the latest report from the Southern African Fraud Prevention Service (SAFPS), identity fraud has increased by as much as 337% in the past year. Monitoring your personal profile flags enquiries made by credit providers, this is a trigger for you to act if an unauthorised credit provider is viewing your credit profile without your consent.
Paid up judgements or defaults must be removed from your credit profile, if you have already paid up the debt, your credit profile will benefit from the removal of this negative data. If you are about to shop around for new credit, take the initiative to rehabilitate your credit profile and settle old debt.
The impact of short paying or skipping payments has a significant impact on your credit score. Credit bureaus collect payments on 85m agreements which includes credit agreements, telecoms, insurance, rental payments, school fee payments and other non-credit agreements.
Your credit profile will indicate how many agreements you are committed to paying each month, what the full value of the outstanding debt is, what your monthly commitment is and the value of any arrears you might have. Every month, each account you have is flagged to indicate your payment, paid up, or how many months behind you are.
Alternative credit data is gaining traction, rental payment behaviour, school fee payment behaviour and even your transactional banking behaviour can all paint a more complete picture of your finances particularly for what is colloquially referred to as “thin-files” – consumers with limited credit activity.
Credit active consumers have the protection of the credit ombudsman. Your credit profile is your gateway to accessing credit or increasing credit limits, decisions are made based on the accuracy of the data. In circumstances of inaccurate or incomplete data, consumers are encouraged to log a dispute with the credit bureau and submit supporting documentation. Once the dispute is logged, the disputed data is masked during the 20 business day investigation. Once the investigation is complete, the data is either restated, removed or updated to reflect accurately. Consumers still have the right of review with the Credit Ombudsman or National Credit Regulator should they feel the outcome of the dispute is questionable.
There are a few quick wins to bolster your credit appeal, but ultimately maintaining a high credit score is a commitment to living within your means, settling minimum balances on your account repayments and reaching out to your credit providers if you fall behind with a view to negotiating updated payment terms.
Michelle Dickens is the CEO of TPN.