Banks are more likely to grant a bond if the applicant doesn’t have a bad debt and payment history
The months – or even years – between deciding to buy a home and finally being in a financial position to do it are often some of the toughest for aspiring buyers as they not only need to save up for deposits, but also do as much as possible to avoid having their home loan applications declined.
They must also ensure they have put in place good money practices to keep up with many years of mortgage repayments.
The first step in this process is to create a budget which includes all monthly expenses, says Nondumiso Ncapai of Absa Home Loans,
“This enables you to see exactly where you’re spending most, and find opportunities to save for your dreams, change in circumstances, emergencies, repairs, maintenance and so on.”
She warns prospective buyers to steer clear of incurring additional financial obligations unless they have enough money to pay for them along with existing commitments and future home loan repayments.
This, does not, however, mean they should not have any credit.
“Having some credit history is an advantage since lenders are reluctant to lend to individuals whose repayment history they do not know,” Ncapai says, advising buyers to open a “small and manageable” credit facility into which they make timeous and consistent monthly repayments.
Once this step is achieved, potential homeowners need to manage their credit status if they want the best chances of having their home loans approved.
1. Pay on time
To improve your credit score you must pay your accounts on time. If you cannot create a debit order, set up a payment reminder.
2. Reduce the amount of debt you owe
3. Do not exhaust your credit facilities.
Most financial institutions score you on the extent of use of your credit facilities, such as a credit card and revolving personal loan.
Extensive use of facilities can negatively affect a credit score.
4. Never miss payments
Do not fall into the trap of not repaying your debt. Should you not be able to, contact your credit provider to arrange a suitable repayment amount.
Taking responsibility now to improve your repayment history will help you to improve your credit score.
The impact of past credit problems disappears with time, so an older poor credit performance won’t haunt you forever, especially if you improve your account management.
5. Monitor your credit record
Keep track of your credit record. Doing this regularly could ensure the record on your profile is accurate and correct.
If incorrect information is displayed, you can dispute the info via a credit bureau. This is usually free. It can remove false claims on your record which could have had a negative impact on your credit score.