Improving your credit score can get you the home of your dreams

Although the current low lending rate has allowed more people to become property owners, others without a history of credit or bad credit have not been so lucky. If you do not receive proper expert advice on how to build or improve your credit score, it may take you a long time to get approved for a home loan.

What is a credit score? 

Your credit score is a three-digit number ranging between 0 and 999. It indicates to the lender, such as your bank, whether your past debt repayment behaviour will make you a low or high-risk client. You can use the ooba Home Loan Bond Indicator to access your credit score.

A credit score of 670 or higher is considered excellent. This means you are a low-risk client with a great chance of getting your home loan approved. If you have a credit score of 600 or more, you will have a good chance of being approved. However, this will vary depending on which bank you use. Less than 600 indicates that you will be high to a very high-risk client.

First-time buyers with no credit history

Potential buyers are encouraged to start activity on their credit profile as soon as they start earning an income. If you are a first-time buyer with no credit history, Linda Rall, Provincial Sales Manager at ooba Home Loans, explains how you can boost your ratings. 

"We always advise new credit users to start with a credit card facility from their transactional bank and one or two retail accounts. You need to use these credit facilities to make moderate purchases of goods and services that you actually need and can afford in terms of the repayments required." 

She further states that timely payments are vital for a good foundation in creating a healthy credit profile. "Ensure that you pay the minimum monthly repayment required every month on time. Never be short, skip a payment, or pay a few days after the payment due date."

First-time buyers with poor credit history

If you plan on buying your first home but have poor credit history there are ways to better your ratings before applying for a home loan. 

"The best way to recover from a poor credit record is to first consider which of the credit accounts can be settled and within what period. Unnecessary and excessive use of credit can lead to low ratings. You should retain some credit to reflect a positive credit history by ensuring that outstanding contractual debt is serviced monthly in full as per the required repayment and on time to rebuild a better profile," advises Rall. 

It can take a period of 3 months to a year before a poor credit score can be turned around into a good credit profile. This depends on the severity of your poor credit issues.

Homeowners with bad debt

It is possible to go into debt after buying your dream home. Should this happen, Rall suggests that you seek proper advice and take the necessary steps that will help you attain a healthy credit score again. 

"If you can no longer pay your monthly bond instalment in full, you must contact the bank and make suitable repayment arrangements by mutual agreement. Do not just let the bond repayments fall into arrears without discussing with the bank. This can result in banks taking action by way of foreclosure and repossession of your home."

Smart ways to get a good credit score

1. Avoid having multiple loans at the same time.
2. Pay off debts with the highest interest rate first.
3. Pay your accounts in full and on time by setting up automatic payments.
4. Use your extra money or bonus to reduce your debt.
5. Avoid revolving credit and opening up new accounts.

If you need assistance with making your property dreams a reality, get in touch with Seeff Hillcrest & Kloof. Data from ooba Home Loans shows that 43.37% of all applications for properties purchased in the Upper Highway area from June 2020 to May 2021 were for first-time buyers with an average bond amount of R1 477 515. Together with ooba, our team of experts will help make your home loan application process smoother.