If you want to know what your chances are of securing a home loan you’ll want to know what is a good credit score in South Africa to gauge your chances of a successful application.
Article summary
- Request your credit score annually from a credit bureau, so that you know what your status is when it comes to assessing your financial risk to a potential lender.
- Your credit score will be determined by how well you manage your debt, how many accounts you have and how long you’ve had them for, among others.
- A high credit score will smooth the way to a successful home loan application.
O-YES offers a range of home loan calculators to help people looking to buy a home determine what they can afford. It’s free, and you can do it in the comfort of your own home, in a matter of minutes.
Very. High. Risk. These are just a few of the four-letter words you don’t want to see when you consider your credit score before applying for a home loan.
Credit bureaus will compile a record of your personal credit transactions and rate your performance according to a credit score chart that indicates how well you manage your debt payments. The result could reflect in a credit score range from minimum to very high risk, which will inform the bank’s decision on whether or not to grant you a home loan. If you’re successful, it might also affect the interest rate they offer and when it comes to big-money advances the lower the interest rate the better!
If you have a history of not making your monthly payments on time or in full, you’ll know what is a bad credit score because that’s what you’ll get when a credit bureau investigates your financial history. They’ll do that by accessing your credit and payment histories, amounts owed and for how long, and types of credit applied for. They’ll also check how long your accounts have been open, how much of your available credit you’re using and whether there is any history of you not honouring a debt obligation that resulted in bankruptcy or a judgment against you.
The credit bureaus won’t only be looking at your payments history. They’ll be able to access your employment history and income as well and calculate your credit score according to a complex formula.
What is a good credit score in South Africa will depend on the bureau rating your financial track record. If you are classified as very high risk, the chances are you won’t be successful in your home loan application as the banks will question your ability to pay them back.
O-YES offers a range of home loan calculators to help people looking to buy a home determine what they can afford.
A good to excellent credit score will have the opposite effect, possibly opening the way for you to negotiate preferential terms and interest rates. Any improvement in your credit score can only work in your favour. It’s relatively easy to achieve once you put your mind to it and exercise a little discipline in managing your finances.
10 tips on how to get a good credit score
- Make sure you don’t apply for more than one loan at a time because that will signal lenders that your financial status has deteriorated.
- Always pay your accounts in full and on time.
- Try to stay out of the red. So keep servicing your debt, only dipping in to available credit when you really need to.
- As much as we don’t like to be in debt, having accounts is a must when it comes to applying for a home loan. Without them, the credit bureaus won’t be able to assess the risk associated with your application.
- It’s a good idea to get your credit card debt down first and keep the balances low because credit cards often carry the highest interest rates.
- Avoid owing more than a third of your gross income on debt.
- Close accounts when you’ve paid the balance owing. This will count in your favour as it will indicate that you are a lower risk.
- Revolving credit is a bad idea and also usually carries high interest rates.
- Remember that as much as you need to manage your own accounts, those of your spouse will also need to be in good shape if you’re applying for a home loan. The banks will want to know about their credit history too.
- If you’re unable to pay the amounts due on your accounts in full, make an arrangement with the creditors to pay lower instalments over an extended period of time.
