Applying for credit can be a nerve-wracking experience, and having your application declined can feel even more frustrating. However, there are various reasons why a credit provider may refuse to grant you credit, many of which are based on reasonable commercial grounds and your personal financial situation. Understanding these reasons and knowing your rights under the National Credit Act can help you take the next steps and, in some cases, challenge the decision.
Why Credit Providers May Refuse Your Application
Credit providers, such as banks or financial institutions, have the legal right to decline your credit application based on their risk management and underwriting practices. According to Section 60(2) of the National Credit Act (NCA), credit providers are allowed to reject an application on reasonable commercial grounds, provided they are not engaging in unfair discrimination.
Furthermore, Section 60(3) clarifies that no one has an inherent right to be granted credit. A credit provider can legally decide not to enter into a credit agreement, provided its reasons align with standard business practices.
Common Reasons for Declining Credit Applications:
- Credit Bureau Report Issues: One of the most frequent reasons is related to your credit bureau report. A poor credit history or errors on your report can make lenders cautious.
- Affordability: The credit provider might determine that you cannot afford the loan or credit line you're applying for after conducting an affordability assessment.
- Risk Management: Providers assess their risk when lending money, and if you appear to be a high-risk borrower, they may decline your application.
What to Do After a Declined Application
If your application is declined, it's essential to understand the reasons behind the decision. Section 62(1)(a) of the NCA gives you the right to request the dominant reason for the refusal, and the credit provider must supply this explanation in writing.
Once you have the reason, you can take further action, especially if you believe the decision was based on inaccurate information or an error in your credit report.
Challenging Errors in Your Credit Report
If the decision was based on incorrect information from a credit bureau, Section 72(1)(c) of the NCA allows you to challenge the accuracy of any information listed. Here's what you can do:
- Challenge the Accuracy: Under Section 72(1)(c), you can contest the accuracy of any information held by a credit bureau or the National Credit Register.
- Investigation: The credit bureau is required to investigate the challenged information within 20 business days and either provide credible evidence supporting the data or remove the inaccurate information from your file.
It’s important to note that according to Section 72(5), the credit bureau or National Credit Register cannot report disputed information until the matter is resolved.
What Happens Next?
If your challenge is successful and the information is corrected or removed, this could lead to a better credit report, improving your chances of being approved for future credit.
When Affordability is the Issue
Another common reason for being declined is that the credit provider determines that you cannot afford the loan. The National Credit Amendment Act (19/2014) mandates that consumers must pass an affordability assessment before credit is granted.
If you're dissatisfied with the result of this assessment, you have options:
- You can lodge a complaint with an Alternative Dispute Resolution Agent or the National Credit Regulator (NCR).
- If the dispute involves a bank, it must be handled directly through the NCR.
Credit providers are obligated to resolve these complaints within 14 business days. If they fail to do so, the NCR will take over and must resolve the matter within seven business days.
Final Thoughts
While having your credit application declined is disheartening, it’s not the end of the road. You have rights under the National Credit Act that protect you from unfair lending practices and give you the power to challenge incorrect or unfair information. Understanding the reasons for the denial and taking proactive steps can put you back on track for securing credit in the future.
If your credit application has been declined, start by requesting the dominant reason and, if necessary, take action to correct any errors or challenge affordability assessments.
By staying informed and understanding your legal rights, you can navigate the credit system more confidently and improve your financial future.
What to Do When Your Credit Application is Declined