If you have a large income, it may appear that you will be able to handle large amounts of debt with ease and, therefore, you should automatically have a good credit score.
However, the credit bureaus may not agree. We have a look at whether your income determines your credit score, and the role it plays in the affordability calculation on your credit applications.
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Does your income determine your credit score?
According to James Williams, head of marketing for Wonga, your income is no guarantee of a good credit score. Perhaps surprisingly, it doesn't even directly feature among the factors considered.
“Your credit score calculation is based on a number of different factors – most notably, it is a record of your borrowing habits. When a lender reviews your credit report, they examine your past debts, enquiries on your account, and what debts you still owe,” says Williams.
Can your salary impact your ability to qualify for a loan?
According to Annelene Dippenaar, chief legal and compliance officer at Experian South Africa, the short answer is yes, as loan affordability is calculated by a breakdown of your finances.
Dippenaar explains that this includes your income, your tax and UIF deductions, how much you pay towards other credit accounts, how much you spend on necessary items (such as groceries and school fees) and any other expenses you disclose to the lender.
“Lenders will look at both your borrowing history and the income you have available to repay any debt before granting you a loan,” she adds.
Williams says that a highly-paid person may have income available to service a loan, but their credit report may indicate that they have not timeously repaid their debts in the past. This will influence a lender’s decision on their application.
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