In the past credit providers used their discretion to decide whether to give you credit.
They usually assessed your financial means or income and checked your debt repayment history as recorded on your credit report, but they were not obliged to do so.
They were also not obliged to check your monthly expenses and financial obligations to ensure you could afford to repay any credit granted to you.
This resulted in people being given credit they could not afford to repay.
Credit providers must check if you can afford credit
In June 2007, the National Credit Act (NCA) was implemented.
This law now requires a credit provider to ascertain whether you can afford any credit granted to you by carrying out an affordability assessment.
There are only a few limited exceptions such as when credit is incidental (an incidental credit agreement) or a pawn transaction.
The NCA also defines granting credit to someone who cannot afford it as reckless lending.
If a credit provider fails to carry out an affordability assessment, it runs the risk of not being able to enforce the credit agreement. This applies irrespective of whether you could afford the credit.
If you were given credit without the provider checking you can afford it, you can seek the help of a debt counsellor or lawyer to apply to a court to declare the credit agreement reckless and to set aside all or some of your obligations in terms of the agreement. Read more: What is debt review?
How is my ability to afford credit checked?
The NCA made affordability assessments mandatory but did not initially stipulate a formula or criteria for such an assessment.
In 2015, the government introduced affordability assessment regulations under the NCA.
Since then, credit providers have been obliged to assess what is known as your discretionary income. This is calculated as:
Your gross income
In terms of the regulations, credit providers must “validate” your discretionary income, when assessing how much credit you can afford. This starts with the validation of your gross income, which credit providers do by requesting your latest three pay slips or your latest three bank statements.
If your monthly income varies, they must calculate your average gross income over the three months. If you are self-employed or informally employed and cannot produce proof of income, the credit provider must review your three most recent bank statements or latest financial statements.
How are my expenses checked?
Living expenses vary widely depending on income. The regulations therefore provide a way for credit providers to calculate your minimum living expenses based on your income using what is known as the minimum expense norms table.
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HOW YOUR MINIMUM EXPENSES ARE CALCULATED 
The minimum expense norms table has five tiers of income. For each income band there is a minimum monthly fix ed amount to which the credit provider must add a percentage of your income above the income band minimum. |
If you declare minimum monthly expenses of more than this amount, the credit provider is entitled to accept those expenses. However, if you declare expenses of less than the norm as per the calculations, you must prove it by providing all the necessary information to support your claim or accept that the credit provider will use the minimum monthly expenses norm.
If you want to prove you have lower expenses than the expenses norm, you must complete a questionnaire listing your monthly expenses in respect of accommodation, transport, food, education, medical care for you and/or dependents, water and electricity and any maintenance obligations.
Joint loans
When assessing what you can afford, a credit provider will include all financial obligations including those relating to joint loans, such as a home loan you have with a spouse, and may draw on the payment history to establish who is the primary payer.
If you are applying for a loan jointly with a spouse or life partner, your joint income and expenses will be assessed, and you will be jointly liable for the full debt.
Loan declined
If a credit provider declines your application for credit, you are entitled to know why. The National Credit Act gives you the right to request that a credit provider give you the reasons in writing
As part of assessment of your affordability and credit worthiness, credit providers draw on your credit report. Read more: What is my credit report?
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WHY IT IS IMPORTANT TO BE HONEST 
It is critical that you are completely honest about your income and expenses when completing an affordability assessment. Should you fail to make honest disclosure, it constitutes reckless borrowing and you forfeit your right to bring a case of reckless lending against the credit provider. |
If your credit report has negative listings, such as a default judgment or you have been flagged as a late payer, this can count heavily against you. If any such negative listing is outdated or incorrect, you can have it removed from your credit report.
If your application has been declined because of negative information on your credit report, the credit provider must give you the name, address and other contact details of the credit bureau holding this information.
You can contact that bureau and request the information be corrected or that the credit bureau provide proof of information listed.
If you are unable to resolve the issue you can lodge a complaint with the office of the Credit Ombud, a consumer court or alternative dispute agent and failing that with the National Credit Regulator. Read more: Where to complain.
