Credit has improved the lives of many South Africans. If used responsibly, it can play a strategic role in wealth creation. However, many consumers fail to qualify for the credit they want, or need.
We consider how to predetermine whether you’ll qualify for the amount or type of credit you need, and how to increase your future creditworthiness.
Tip: Once you’ve qualified for credit, you can start building your credit score. Find out more and register here to view yours.
Should you take out credit?
Many of us were raised to believe that credit is bad irrespective of its purpose, but this simply isn’t true, says Ayanda Ndimande, head of business development at Sanlam retail credit.
“When used for things that increase your net worth and generate value, credit can empower you to realise your goals,” she says. “However, it’s important to understand when to use it and how much credit exposure is reasonable.”
Before applying, ask yourself the following questions:
- What do I need the credit for? Distinguish between your wants and needs, says Ans Gerber, head of data insights at Experian South Africa. A home and a car are needs, but using a credit- or retail card to buy luxuries you can’t afford is unwise.
- Is taking on credit the only way to get what I need? If you’re patient, you may be able to save, and avoid fees and interest in the process.
- Have I budgeted for it, and can I pay it back? Can you pay your monthly instalments in full and on time while honouring your other financial responsibilities?
- Is my job situation stable? Losing your income will directly affect your ability to repay your debt.
Reasons you may not qualify for credit
The more common reasons for credit refusal are as follows:
- You don’t meet the age criteria. Some credit providers impose an age limit, says Ndimande.
- You don’t meet the minimum income criteria. The minimum income you need to qualify differs from one credit provider to another. Sanlam will lend to someone who earns a minimum of R5,000, while Capitec will lend to you if you’re formally employed and earn at least R3,000 a month.
- You don’t meet the affordability criteria. Affordability calculations assess whether you’ll be able to afford to repay the loan comfortably. “The first thing we look at is whether a client can afford to pay and, if so, the monthly instalment they are able to pay,” says Wilhelm Koster, divisional executive: retail credit at Capitec.
- Your living expenses can count against you. A lender will scrutinise your bank statements to determine your creditworthiness. If you’re living beyond your means, you’re unlikely to be a good candidate for credit, says Koster.
How to become creditworthy
The following tips may help you to apply successfully for credit.
- Live within your means. Draw up a realistic budget and stick to it.
- Manage your finances responsibly. Keep your current bank account in good standing and use your overdraft facility responsibly.
- Pay your bills on time. Your payment history accounts for a significant percentage of your credit score, so make sure you’re honouring your financial obligations.
- Save diligently. Having a savings account means you’re far less likely to need credit in an emergency, which could plunge you into debt.
- Try to avoid payday loans. These loans indicate you need credit to survive, which makes you a risky lending proposition.
- Educate yourself on money matters. Capitec’s Live Better Academy has a comprehensive library of educational content on credit and money matters. JustMoney also has a wealth of educational content on its website.
Tip: Checking your credit score regularly can help you spot any issues, and address them quickly. This will count in your favour when applying for credit.