How we assess borrowers

Our credit rating methodology has been developed according to the principle of three Cs: Capacity, Character and Collateral. This approach is commonly used in mortgage underwriting to assess risk. The following table displays the three Cs and the variables we consider when assessing a borrower.

	Definition	Key variable	Weight
Capacity (affordability test)	(affordability test) The amount that a borrower can carry, i.e. total monthly expenses (payment on current debt/s, housing payments, credit cards payments, car payments etc.) divided by total monthly income (salary, self- employment, net rental income) minus The aim is to estimate the total debt service ratio (TDSR) prior and after debt (for which the loan is sought).	TDSR	25%
Character	Based on credit report variables: past credit history, time at present address etc. and time at employment.	Credit report	60%
Collateral	Loan to value ratio of the property to which financing is sought. Value is estimated by an independent valuer.	LTV	15%

Character is the most important variable when we assess a borrower, based on a borrower’s credit report which we obtain from a credit referencing agency. It is followed by Capacity, which is an assessment of a borrower’s ability to afford a loan. We also assess the security provided by a borrower, Collateral.

After each of the Cs has been assessed, we assign a rating based on a 5 point rating scale, where 5 is the best and 1 worst.

Capacity scoring

TDSR	Rating
Up to 39%	5
40-49%	4
50-59%	3
60-69%	2
70% and higher	1

Character scoring

Credit report score	Rating
5	5
4	4
3	3
2	2
1	1

Collateral

Collateral - LTV	Rating
Up to 55%	5
56-60%	4
61-65%	3
66-70%	2
71% and higher	1

Sum of ratings for each C, adjusted for their respective weight is what finally sets the borrower’s credit rating:

Credit score	Definition	Segment	Credit rating
5	Very good	Super prime	A
4.1-4.9	Good	Prime	B
3.1-3.9	Fairly good	Near Prime	C
2.1-2.9	Poor	Sub Prime	D
Up to 2.0	Very Bad	Sub Prime	E