When it comes to applying for a bond, it is vital to have evidence of excellent credit worthiness
A spotless credit record is almost as good as cash in the bank – or at least it is for those applying for a bond.
This is because it can help you obtain an interest rate concession that will not only lower your monthly bond repayment, but also cut thousands of rands off the total cost of your property over 20 years.
For example, a borrower who obtains a R1 million loan now at an interest rate of 10.5% instead of 11%, will pay around R300 less a month and save more than R80 000 on the total cost of their house, says Gerhard Kotzé, managaing director of the RealNet estate agency group.
“And with the national average home price now standing at almost R1.2m, there are not many buyers who can pay cash for their property and not need a bond – or the good credit record required to get one.”
However, Kotzé notes that it can take years to build up a good credit history – or to clean up credit “mistakes”.
For this reason, good management of monthly accounts and other debts is vital, even for young people who have no immediate plans to buy a home.
“Getting an early start on building a good credit record also means that if there are minor misjudgements early in a working career, they will probably be outweighed by a longer period of good credit management when the time does come to apply for a bond,” he says.
An important first step is to open a savings or cheque account in your name, keep it balanced and stay within your credit limits.
“A history of no defaults on a major purchase like a car will also be a great recommendation, as will a record of always paying your rent on time.
“When it comes to accounts for things like store cards, your cellphone and city council services, you also need to pay attention to the ‘due-by date’ for each instalment and try to pay before that.
“For credit reporting purposes, you need to pay on time and in full to avoid black marks. Accounts are usually regarded as overdue if the minimum amount stated has not been paid within 30 days.”
Another useful rule for good credit management is to try to keep the total value of your monthly credit repayments or instalments (excluding rent or bond repayments) to 30% or less of your monthly nett income.
“According to the latest statistics from PayProp, the average debt-to-income ratio in South Africa is 40%, which is why so many prospective homebuyers are finding it difficult to save up a deposit.”