In terms of the National Credit Act (No 34 of 2005), credit providers are required to carry out rigorous checks on consumers applying for credit to promote responsible credit granting and use and to prohibit reckless credit granting.
There can be a number of reasons for applications for credit being declined.
The most common reasons for being denied credit are:
- You have a limited credit history – Your credit application could be denied if you’ve never had credit before or if you don’t have much experience with credit. When you apply for a loan, lenders look at your borrowing history listed on your credit reports at credit bureaus. Having a credit history of positive and consistent payment behaviour is a good indication that you are credit responsible.
- Not enough income – Lenders need to ensure that you’re able to make the minimum monthly payments before they approve your loan. Most lenders use a debt to income ratio to see if you can handle the payments if your loan is approved. They compare how much you earn each month to how much you spend on monthly expenses and other debt repayments. If you’re unable to afford the new debt, they will decline your application.
- You have a judgment or other legal notices against your name – Serious delinquencies are a sign to the lenders that you don’t have enough money to meet your financial obligations. It’s important to prevent this by ensuring you pay your instalments in full and on time and if you’re in arrears, catch up as soon as possible.
- If you have negative or adverse bureau information on your credit report – Adverse information, such as late payments or defaults, indicates to lenders that you may not be able to pay your debt back responsibly. The lender may find you do not meet their requirements and decline your application.
- A lender may have additional requirements – Your credit score and credit report are not the only factor lenders take into consideration assessing your application. They often their own additional business rules that apply.
Other reasons for applications being declined:
- Sometimes mortgage loans aren’t granted because the bank appraises the property you want to buy at a lower value than the loan you are applying for.
- Balances on existing loans may be too high.
- Credit card balances may be too high.
- You may have too many enquiries on your credit report. Applying for too many credit cards and loans within a short period of time could look risky to lenders.
- Your application is missing vital information, for instance, your date of birth or residential address.
- Recent changes in your circumstances. If you have recently moved or changed jobs and haven’t notified all your creditors, the lender you are approaching for credit won’t be able to verify the information you provide.
- You don’t have an income or regular income.
On occasion, the list of criteria could mean that even applications by seemingly creditworthy consumers will be turned down. If your application for credit is denied, you have the right to ask the lender why it was declined.
Make sure your credit report is in order by going to www.mycreditcheck.co.za to get your full free credit report.