Applying for credit can feel like navigating a maze. In South Africa, understanding the credit approval process—focused on credit behaviour, affordability, and employment verification—helps you build a strong profile. Let’s explore these pillars and how they shape your creditworthiness.

Understanding Credit Behaviour in the Credit Approval Process

A borrower’s past financial actions tell a compelling story. Credit providers closely examine your history to gauge your reliability. They primarily look at:

• Payment History: Lenders assess how consistently you have honoured your previous loan obligations. Information maintained by credit bureaus offers a snapshot of your past performance. A history punctuated by timely repayments significantly boosts your credibility, whereas a pattern of missed payments or defaults raises red flags.
• Credit Utilisation: Beyond just looking at your repayment history, providers also evaluate how you manage current debts. This includes the balance-to-limit ratios on revolving credit facilities. Responsible management of credit suggests a lower risk of taking on additional debt, steering clear of over-indebtedness.

When all these factors align positively, they portray a picture of a well-managed financial past. Even minor late payments or consistently high credit utilisation might signal potential stress in your finances, prompting further scrutiny.

Affordability: A Key Element in the Credit Approval Process

Credit providers need to confirm that you can realistically manage new debt within your existing budget. Affordability isn’t solely about how much you earn; it’s about how much you have available after meeting essential expenses. Here’s how affordability is assessed:

• Net Income Review: Lenders examine your payslips and bank statements to determine your actual take-home pay. They focus on your net salary—the amount remaining after statutory deductions and regular expenses—since this reflects your true capacity to meet debt obligations.
• Tracking Variable Income: For individuals who earn commissions, bonuses, or overtime pay, lenders typically calculate an average income over a period of three to six months. This helps ensure that temporary peaks or troughs in earnings do not distort an accurate assessment of your financial stability.
• Expenditure Analysis: A closer look is taken at your monthly expenses. Credit providers want to see that, after covering cost-of-living expenses, there remains a comfortable surplus to service the additional debt. This balance is critical in determining your ability to maintain timely repayments without straining your monthly budget.

To learn more about affordability calculations, the National Credit Regulator provides guidelines to help consumers understand their borrowing limits.

Employment Verification in the South African Credit Approval Process

Steady employment is a cornerstone of any strong financial profile. Lenders seek proof that your income source is reliable. They verify:

• Job Stability: The length of your employment with a current employer acts as a proxy for job security. A stable employment history suggests that you have a consistent income, making you a more attractive candidate for additional credit.
• Income Documentation: Apart from paying attention to your earnings, lenders typically request supporting documents such as your most recent payslips and bank statements showing your salary deposits over the past three months. This helps verify your income claims and adds an extra layer of security to their assessment.

A Real-World Perspective

Imagine a young professional from Cape Town who has spent several years actively cultivating a healthy credit history. Over time, consistent and timely payments on previous loans have created a strong record. His bank statements reveal that, after essential expenses, a steady surplus remains each month. Moreover, a stable job with a reputable employer for over three years, backed by recent payslips, further underscores his financial dependability.

In evaluating his credit application, lenders see an interwoven narrative of responsible credit behaviour, clear affordability, and robust employment verification. They understand that his disciplined approach to finances has led to a solid foundation, making him a low-risk candidate. This cohesive financial picture is exactly what credit providers are looking for—a demonstration that past responsibility and current stability align with the promise of future repayments.

Bringing It All Together

At its core, the credit approval process is about risk management on both sides of the transaction. By scrutinising your former credit behaviour, assessing your current affordability, and confirming the stability of your employment, lenders aim to ensure that every credit decision is grounded in factual financial evidence.

For anyone looking to improve their credit profile, consider these steps:

1. Maintain a strong payment history: By paying off loans on time, you help build a positive record that signals fiscal responsibility.
2. Monitor your spending and savings: Ensure you always have a surplus after your monthly expenses. This not only boosts your affordability but also helps in budgeting for unexpected costs.
3. Document and stabilise your income: Keep thorough records of your income and aim for stability in your employment. A consistent source of revenue reassures lenders significantly.

These practices don’t just prepare you for a successful credit application; they also empower you to manage your finances more effectively, paving the way for a secure financial future.

Disclaimer: Splendi does not constitute a financial adviser. The information provided is for informational purposes only and should not be considered professional financial advice. Always consult with a qualified financial adviser before making any financial decisions.