A good credit score is very important when buying a house. Here’s why:
It has been established for a long time that most South Africans are battling under the weight of debt. Individuals and households have continued to seek loans and credit facilities in order to finance their daily expenses and to pay for already accrued debt on cars, homes, gadgets, education and leisure expenses.
Recent findings by PayCurve, published by HR Pulse show that 11% of respondents spent more than half their monthly income paying off short-term debt and 43% pay more than a fifth of their salaries towards such loans while 84% need some sort of debt to cover monthly expenses before payday.
Implications of bad credit on home loans
When it comes to seeking financing to purchase a home, banks and lenders have a safeguard to ensure that applicants’ credit score is good before they consider lending. This is done to avoid the risk of lending to a customer who has a high possibility of defaulting on repayments.
This assessment is done through credit bureaus and using internally developed risk assessment systems where the applicants credit history is scrutinised. Credit scores in South Africa are generally measured on a scale of 300 and 850 with 580 to 669 considered as medium risk score. Some of the major causes of a bad credit score include late or missed payments and possible judgements against the applicant.
How can someone improve their credit score?
Pay your bills on time
This may sound cliché but there is no better way to stay clear of a bad credit record than paying your bills on time. You can opt to put your payments on debit order to avoid forgetting the due dates of payment.
Check your credit worthiness
It’s always better to stay informed and know your credit worthiness. You can access your credit report through South Africa’s credit bureaus namely Experian, TransUnion, Compuscan and XDS.
Reduce credit and loan enquiries
The more credit and loan enquiries you make, the more they reflect on your credit profile. You can reduce this by making enquiries only when it’s really necessary.
Pay off debt
Dodging debt repayments may feel convenient but there is no escaping the harm it causes on your credit profile. Pay off debt and your credit score will benefit.
Consider debt consolidation
Having different credit and loan streams may prove detrimental to your credit score report. You can consolidate different debt accounts so that they are managed and paid off from one place.
Credit cards are a major contributor to debt repayment defaults. What’s even worse when it comes to credit scores is to close unused credit card accounts. Don’t close unused credit cards because closing an account may increase your credit utilisation ratio.
Lastly, you can keep your credit record clear by spending responsibly. This can be done by drawing up a budget, identifying priorities and living within your means. Only seek credit in moments where it’s unavoidable.
The information provided above, if well utilised, will assist you with staying debt free with an excellent credit score.