How to improve your credit score for buying a home

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A good credit rating is very important when buying a home. Here’s why:

It has long been established that most South Africans struggle with the weight of debt. Individuals and households continued to search loans and credit facilities in order to finance their daily expenses and to pay off debts already accumulated on cars, houses, gadgets, education and leisure expenses.

Recent findings from PayCurve, published by HR Pulse show that 11% of respondents spent more than half of their monthly income to pay off short-term debts and 43% pay more than a fifth of their wages for 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 buy a home, banks and lenders have collateral to make sure applicants credit score is good before considering a loan. This is done to avoid the risk of lending to a customer who has a high possibility of default.

This assessment is performed by credit bureaus and using in-house developed risk assessment systems where applicants’ credit histories are reviewed. Credit scores in South Africa are typically measured on a scale of 300 and 850, with 580 to 669 being considered an average risk score. Some of the main causes of a bad credit score include late or missed payments and possible judgments against the applicant.

How can someone improve their credit rating?

Pay your bills on time

It might sound like a cliché, but there’s no better way to avoid a bad credit loans report than to pay your bills on time. You can choose to put your payments on a debit order so that you don’t forget the payment due dates.

Check your creditworthiness

It’s always best to stay informed and know your creditworthiness. You can access your credit report through the South African credit bureaus, namely Experian, TransUnion, Compuscan, and XDS.

Reduce credit and loan demands

The more credit and loan applications you make, the more they reflect your credit profile. You can reduce this by doing research only when it is really necessary.

Pay off the debt

Avoiding debt repayments may seem convenient, but it’s impossible to escape the damage it causes to your credit profile. Pay off your debts and your credit score will benefit.

Consider debt consolidation

Having different credit and loan flows can be detrimental to your credit report. You can consolidate different debt accounts so that they are managed and paid off from one place.

Credit card

Credit cards are a major contributor to defaults on debt. What’s even worse about credit score is closing unused credit card accounts. Don’t close unused credit cards, as closing an account can increase your credit utilization rate.

Spend responsibly

Finally, you can keep your credit history clear by spending responsibly. This can be done by budgeting, identifying priorities and living within your means. Only seek credit when it is unavoidable.

The information provided above, if used properly, will help you stay debt free with a great credit score.

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