The ABC's Of Applying For Credit

Fit credit and debt managed well can be the foundation for you to move up in life, get the bigger house, the new car or the stylish clothes. According to the National Credit Regulator, nearly 51% of all credit applications are declined, so before you apply for that loan or new account there are some things you need to know, and then some you need to do to make sure your application is approved.

A loan or credit is a means to buy something you can’t afford with someone else’s money. The way credit providers make money is to charge you fees or interest and let you pay it back in smaller payments over a fixed time period. A bank or a credit provider is in this business to make money after all and they go to great lengths to ensure they loan money to those who “should” be able to pay them back. They spend large amounts of money on intelligent systems, clever analysts and use heaps of data to make the best decision they can with every application.

Credit providers are regulated under the National Credit Act and they are required to take multiple steps to protect you and limit their risk of reckless lending. They have to evaluate your affordability to determine if the loan you are applying for can be paid every month and whether the new debt would place your other payments under stress. They have to evaluate your risk. This normally includes doing a credit bureau check and using the data in predictive score cards. Your credit history held on your credit report shows patterns of payment and non-payment. If you are not paying other accounts, are you likely to pay them? Judgements and defaults, especially recent ones, will make approval very difficult. Then each product or loan type will have specific criteria that your application will be evaluated against, like age or the value you are applying for. This then leads to the next question I often get asked: “How much credit do I qualify for?” It’s a short answer, “I don’t know”, followed by “what are you applying for and with whom?”

Each bank has different rules and each loan type has different rules. If you apply for a R5000 loan, the criteria are different to a R50 000 loan, and a car different to a house and bank A’s rules different to bank B’s.What you can do is prepare yourself well before you apply for credit. You need to look at your credit reports and you need to do it often. It is the same information the credit grantors use and you must know the information is accurate and you must remember that you have negotiating power with a good credit status, so use it. There is more than one credit bureau and credit providers use different bureaus, so make sure you see them all, try a credit report aggregator to see it all in one place. Instead of applying with a poor credit status, take some time to improve your rating.Next, find out how much the new monthly debt repayments will be. Credit providers must declare all costs to you, it’s the fine print or the rushed script at the end of a radio ad. Save up – a deposit on the loan will bring down your monthly repayments and total debt. Banks love this. Don’t apply if the repayments are going to be too high as you will be declined. Each application you make will also be registered at the credit bureaus. Too many applications (enquiries) on your credit profile will decrease your credit score, especially if they are in one month.Gone are the days that a pretty smile and your best suit will get you credit, so know your credit status, build it and use it to save on credit.

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