New data from consumer credit reporting agency TransUnion shows that South African consumers are desperate to become credit active.
Consumers remain concerned about their ability to pay their bills and loans. 41% reported they’ve’ been in arrears for a bill or loan in the past three months, indicating a substantial proportion of South Africans remain under financial pressure.
Of consumers who missed payments in the last three months, 33% reported missing one and two bills or loans, and 17% missed three bills or loans. Furthermore, 79% of consumers are very or extremely concerned about the current inflation rate, and 83% are changing their purchasing behaviour because of inflation.
However, consumers do express the need and an appetite for credit: 81% of households consider access to credit essential or moderately important, but only 33% believe they currently have sufficient access to credit and lending products.
Almost a third (31%) plan to apply for new credit or refinance existing credit within the next year — with new personal loans (43%) and new credit card (35%) applications topping the list.
The study shows a clear consumer appetite for credit. Eight in 10 (81%) households consider access to credit important, but only 33% believe they currently have sufficient access to credit.
Almost a third (31%) plan to apply for new credit or refinance existing credit within the next year, with new personal loans (43%) and new credit card (35%) applications being on top of the list.
43% of surveyed consumers considered applying for new credit or refinancing existing credit but ultimately decided not to: 35% felt that the cost of new credit or refinancing was too high, and 32% believed their application would be rejected due to low income or their employment status.
TransUnion said that most credit and service providers use the information in your credit report as an essential contribution to developing their own credit risk score.
“This, along with your employment history; your income and affordability assessments, as well as the type of credit for which you are applying, may affect the outcome of your credit application.”
Your Credit Bureau score is calculated using a formula that evaluates how well or poorly you pay your bills, how much debt you carry and how all of that stacks up against other borrowers.
“In effect, it tells you in a single number what your credit report says about your management of existing credit.”
Credit providers use your credit score to determine whether you qualify for a loan and how much interest you should pay.
Generally, the higher your score, the better. For example, a TransUnion Consumer Credit Score can range from 0 to 999 or from poor to excellent. The following score bands are defined for the score:
Excellent credit: 767 – 999. These individuals will quickly obtain credit and receive meagre interest rates.
Good credit: 681 – 766. These borrowers can get the best loan programs and offers at a reasonable rate.
Favourable credit: 614 – 680.
Average Credit: 583 – 613.
Below Average Credit: 527 – 582.
Unfavourable Credit: 487 – 526. These people may struggle to get a loan, and their interest rates will be higher.
Poor Credit: 0 – 486. Individuals in this category may not qualify for loans and should focus on improving their credit scores.