CAPE TOWN - When approaching a bank for finance, there are a number of factors that will be considered before your application can be approved.
According to First National Bank (FNB), banks will in most cases take into account the location and market value of the property, the deposit you are willing to put down, as well as your credit score and affordability.
Head of Sales at FNB Home Loans who are the official Finance Zone Sponsors of the Property Buyer Show in Gauteng, Stanley Mabulu said: "However, what many first-time home buyers don’t realise is that a poor credit profile or no credit profile affects the overall scoring on an application, and can lead to a decline, a lower offer on the loan amount requested, or a higher interest rate, as the risk is perceived to be higher."
They stated that before applying for a loan, it is essential that applicants first understand how a credit profile works and whether they have a good or poor one, or if it even exists at all.
Mabulu said that having a credit record, or a poor one many times proves challenging when applying for a home loan.
He added that banks perform a number of comprehensive credit checks on each loan applicant, this is due to the repayment of a home loan most certainly being the client's biggest monthly commitment.
This is to assure that the client has been keeping up on their monthly repayment commitments, this will also be a good indication whether they will do the same on their home loan.
"Consumers are always encouraged to take corrective action on poor credit profiles prior to applying for a home loan, bearing in mind that certain profile challenges can take anywhere from six months to two years to reflect an adequate improvement. Individuals with no credit profiles are advised to start building their profiles responsibly, without taking on more debt than they can keep up with. For example, getting an account at a local clothing store or applying for a credit card that you then make small purchases with and repay as quickly as possible," Mabulu explained.
According to the National Credit Act, South African consumers can access their credit profiles for free once a year from select credit bureaus, namely TransUnion (ITC), Experian, XDS and Compuscan.
"We encourage consumers to take advantage of this and establish if there are any defaults or judgements listed against their names, or if there is any information which has been incorrectly listed on their profiles," said Mabulu.
Banks also use client's credit and risk profiles as one of the measures to determine the interest rate that will be charged on their home loan.
In order to get that kind of information, a bank would normally do an enquiry into a customer's bureau profile with written permission from the customer in order to correctly assess the risk of borrowing.
"A first-time home buyer could either have a wealth of bureau information, from which a bank could have an indication of the risk; or have a thin bureau profile, meaning that a bank would not know a lot about this customer. Less information about the customer increases the level of uncertainty on the extension of credit," Mabulu concluded.
First National Bank will be at the Property Buyer Show Gauteng which will be taking place from 28 - 29 October at the Sandton Convention Centre.
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