Equifax creates affordability indicators

Equifax, credit reference agency and data provider, has launched a new set of creditworthiness and affordability indicators.

Equifax creates affordability indicators

The indicators incorporate a borrower’s income, outstanding debt and credit usage to provide lenders with a clearer understanding of a customer’s capacity to make repayments.

Equifax said that by more accurately estimating a borrower’s ability to afford a loan, lenders can address challenges posed by regulatory requirements to identify potentially problematic debt or financial vulnerability.

The indicators can be used at point of application and over the lifetime of the credit agreement enabling lenders to monitor affordability for both new and existing customers.

The new set of indicators include current account turnover (CATO) affordability indicators which provide information on a customer’s level of unsecured debt relative to turnover and significant changes to turnover.

There is also a CATO index which will help lenders segment and monitor their customer population which can be used to establish appropriate credit terms for individuals.

Jake Ranson, banking and financial institution expert at Equifax, said: “Assessing a borrower’s capacity to meet their repayments is increasingly vital to protect against over indebtedness.”

He said the indicators will provide a comprehensive picture of a borrower’s financial standing and a transparent view of signs of credit distress.