Credit. Picture: ISTOCK
Credit. Picture: ISTOCK

If you’ve been turned down for credit, the launch of a new credit scoring model may signal good news for you. Using its new model, credit bureau TransUnion has identified an additional three-million consumers who are eligible for credit but have been disqualified by traditional scoring models, says Lee Naik, the president of TransUnion Africa.

Up until now, lenders have used traditional scoring models based on a "point-in-time" score to assess worthiness for credit, Naik says. "But as tech has evolved, we’ve been able to build this advanced credit-scoring model providing additional insights based on patterns in the consumer’s behaviour over a 24-month period."

He says this gives lenders a dynamic and more accurate view of the consumer.

Part of what sets CreditVision apart is the use of "alternative and trended data". An example of alternative data is a consumer’s interest in a business or their relationship with a short-term insurer. Trended data refers to the analysis of a consumer’s credit behaviour using new analytics to predict how they are likely to behave.

The model can provide as much as a 56% improvement over traditional models when it comes to predicting the risk that you will default on your repayments, which can lead to a 20% increase in approval rates, and a 29% decrease in bad debt amounts, according to TransUnion.

CreditVision has been used successfully in countries such as the US, Canada, India, Hong Kong and Colombia, Naik says. An additional 26-million consumers in the US and approximately 10% more Canadian consumers will receive a credit score thanks to CreditVision.

Naik says three financial institutions and two retailers in SA have started using CreditVision, and consumers will soon start feeling the effects. If you hear that any of your creditors are using the model, and you’re a good risk, you could use this to negotiate better rates of interest with your creditors, he says.

The additional three-million credit-worthy consumers in SA include millennials and people entering the workforce who have no credit record but are good-paying consumers, Naik says.

Credit providers — and not credit bureaus — decide whether or not to extend credit to you. Their decision is based on your how you score in an assessment of whether you when can afford to repay credit and your credit score, which is a lender’s standard for rating you as a consumer of credit. Credit bureaus also have their own scoring models, and your score may or may not be on the free credit report which you’re entitled to get once a year from each of the consumer credit bureaus.

Naik says that only about 600,000 credit reports are issued annually for free to consumers, from a pool of 25-million credit-active consumers in SA. He says this is probably because consumers fear a negative report. "But the more informed the consumer, the better the consumer," he says.

Hannalie Crous, the head of retail credit at First National Bank, says the main reasons consumers are turned down for credit are because the assessment shows they cannot afford to repay the credit or loan and/or a poor credit repayment history. "Consumers who are overexposed to credit, meaning the borrower has little to no financial capacity to service new debt, are far less likely to get approved for new credit, even though they may have an acceptable credit repayment record."

She says that a consumer who has no credit report can be eligible for credit if they have capacity to service a new instalment and have managed their bank account in a responsible manner by honouring all debit orders. Such a consumer would typically be granted a small loan or credit facility to start with. She says you can use payments towards cellphone contacts and insurance contacts, both of which are not credit agreements, to establish a credit history.

If you have been refused credit, the National Credit Act gives you the right to know the reason your application was turned down. You have the right to a written explanation setting out the main reasons why the credit was declined.

But you don’t have an automatic right to this information. It must be provided on request. You are also entitled to know why an application for a credit limit is lower than what you applied for, or why the interest rate offered by a credit provider is higher than you expected.

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