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Debt free - why am I penalised?

Sep 13 2011 06:59

A Fin24 reader writes:

I am a full-time employee earning above R24 000 a month. I have a savings fund, retirement annuity, life insurance and medical aid cover. Since about a year ago, I also have a credit card from Absa.

My car is paid off, I'm renting accommodation and I have no loans.

I recently applied for an account with a home store chain, thinking it would be a good way to buy furniture instead of using my credit card. I also wanted it as proof of my new residence, since certain organisations no longer accept a police affidavit as proof of residence.

My application was denied, presumably because I have not built up a credit record.

Why am I being penalised for being smart with what I have?  What am I missing here? Are savings and no debt no longer the way to live?

The National Credit Regulator responds:

The National Credit Act (NCA) furnishes consumers with certain rights and obligations. The NCA provides that every person has the legal right to apply for credit from any credit provider.

This right, however, does not prevent the credit provider from turning down your application. If your application is turned down, you have the right to be provided with reasons.

However, it should be noted that the decision to grant credit to a consumer is the business decision of the credit provider based on its risk management principles.

In terms of the NCA, the credit provider is required to conduct an affordability test. This should assess the consumer's:

  • understanding of the risks and costs of the proposed credit;
  • debt repayment history of credit agreements; and
  • existing financial means, prospects and obligations.

It is also important to shop around because different credit providers have different assessments and credit policies for applicants.

Our advice is that you ask the store why it is declining your application, and how you can go about rectifying the situation so that you will be granted credit with it.

 - Fin24



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