Tips for your credit score

Whether you’re buying an apartment, a brand-new development home or a free-standing house, you’ll undoubtedly have to take out a bond and pay it off, which means, borrowing money from a reputable lender. Hopefully, you’ve been maintaining a good credit score, which means the odds are in your favour.

However, if you haven’t, it’s also not the end of your home-buying journey, you’ll just have to put that dream house on hold for a bit.

What is a Credit Score?

It’s a common misconception to believe that if you don’t have any debt, you’re an excellent candidate. Wrong. Without evidence of repayments, banks and other financial lenders can’t be sure that you’ll pay back loans you take out with them.

To put it simply, a credit score is a record of your borrowing and repayment habits. For instance, when you take out a clothing account, every time you pay your instalments, it gets noted as positive data. And, every time you miss an instalment, it’s recorded as negative.

So, when you apply for a home loan, this data determines your regular repayment behaviour, which is perceived to be a reliable indication of whether you’ll be able to repay your bond instalments.

How can I get a Credit Score?

Firstly, you need to have a reliable source of income and a bank account.

Then, the easiest way to start is by opening a clothing account that’s within your price range, buy a few things, then start paying the monthly instalments on time. By doing so, you’re establishing a positive credit score, then once approved, you can get yourself a bank issued credit card and do the same.

It’s understandable that life can throw us some curve balls, but it’s important to try and deter these incidents from your credit. However, maintaining a good credit score can be easy. In fact, if you have an existing credit profile that you want to improve, these methods can be applied too:

  • Create your own budget – If you don’t already have one, make one immediately. Your living expenses like rent, food and rates, coupled with other monthly debits like gym fees, cell phone bills etc. should be included. If you stick to your budget, you shouldn’t run into trouble.
  • Pay your instalments on time –Even if you miss your payment by a day, it reflects badly on your score. As soon as you receive your statement, pay the minimum requirement and be done with it.
  • Prioritise your credit card – Sure, it’s saved you when you needed it, but it’s important that you stay on top of these payments. Banks generally charge a high interest rate on these accounts and they have more impact on your score than other accounts, so settle these instalments first.
  • Close accounts that you don’t use – That clothing account you opened all those years ago which is no longer in your personal taste? Yes, get rid of it. When you have your details assessed, all your data is taken into account, even ones that are dormant.
  • Don’t use credit for debt – It’s important that you use ‘real’ money to pay off bills. When you start to juggle credit cards to settle accounts, that data can get flagged as financial struggle, which could have a negative impact on your credit score.

Know the Score

Remember, it’s important not to take on too much debt. Your affordability should be calculated as:

Net income – Monthly debts – monthly living expenses.

Anything that falls outside of your equation shouldn’t be taken on right now.

Also, there are several companies that can provide you with your credit score, so that you can see where you’re sitting. It’s important to know your status, to ensure you have enough time to fix your ratings, before the problem escalates.

It might sound overwhelming at first, but maintaining a good credit score is easy once you know what to look for.

If you feel that your credit behaviour is where it needs to be, contact SA Home Loans to apply for a home loan today.

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