Creditworthiness
is an important business and personal asset each person has to
manage. This is an asset which could make or break business relationships and
interestingly in some cases, personal relationships. This is a complex abstract concept
that is evaluated in many ways by different
entities. The factors contribute to creditworthiness is really dependent on the specific evaluation case.
This article explains how one can determine a consumer’s creditworthiness and
affordability,
in other words, a consumer’s ability
to repay debt.
So what is creditworthiness?
Creditworthiness
Definitions to summarize creditworthiness have existed for as long as credit has been extended to individuals and organizations. With the promulgation of the Act,
the
standardized definition of creditworthiness has to be taken into consideration. Any definition of
creditworthiness needs to withstand any test in terms of the NCA. Any definition associated with creditworthiness should therefore fall within the
ambit of
a consumer’s:
Affordability
Credit history
Doing a proper affordability calculation and credit risk assessment based on the credit history of the consumer will allow the credit provider to determine
the
creditworthiness of the consumer. Doing an investigation into the creditworthiness will also ensure that credit is not extended recklessly and that the consumer
is not
over-indebted.
So, when is a consumer over-indebted?
A consumer is over-indebted when:
The consumer will not be able to satisfy the requirements of obligations in terms of credit agreements; and The consumer will not be able to satisfy those requirements in a timely manner.
In the
following sections we are going
to consider how
to assess
the creditworthiness of a consumer in terms of his/her credit history
and
affordability. A consumer’s
creditworthiness has traditionally been determined by a number of factors, a few examples include:
Record of
payments in the past
Income
Regular expenses
Current debt
and
the repayment of such
Employment
When assessing the creditworthiness of the consumer, the following credit qualities
of the consumer must be investigated:
The payment record of
the
consumer
The income of the consumer
The current exposure in terms of
debt of
the consumer
The employment prospects of the consumer
The residence of
the
consumer
The age of the consumer
Marital status of the consumer
The need for the credit
The influence of any economic variables.