Disposable income is the money you have left over each month after your essential spending.
How it’s calculated
This is calculated by taking your total net income for the month and then taking away all your spending for the month.
Net income is your income after tax and deductions - think of it as your take-home pay. Your disposable income is the amount you have left over each month.
Why lenders want to know about disposable income
Lenders want to see predictable income and that you're responsible with your finances. This gives them peace of mind that you’ll be able to manage and pay back what they lend you.
They look at average spending behaviour over a long period (between six months and a year, but it varies by lender). So if you have to spend more than usual for one month, it doesn’t matter too much.
Lender risk indicators
When making decisions on applications, lenders like to see if a potential borrower will be able to afford new credit. There are some factors that lenders consider higher risk.
These factors can reflect in your spending patterns. When you activate Credit Health, we’ll show you lender risk factors and their impact on how you look to lenders.
Debt-to-income ratio
Lenders like to see that you have a low debt proportion in comparison to your income. This shows you’re more likely to pay them back and be able to afford new credit. When you activate your Credit Health, we show you your debt-to-income ratio. This helps you understand how lenders see you.
Income and essential spending
Essential spending is exactly that - all the things you have to pay for each month, like bills, groceries and housing costs. When you activate your Credit Health, we calculate this for you and show you insights to help you get money-strong.
To calculate net income and essential spending yourself, add up all your income (after tax and deductions) and take away all your spending. Lenders like to see predictability for at least six months when considering you as a borrower.