Having the right credit score is the first step toward securing the funds to buy your first home.
It can affect anything from credit approval and the principal amount you qualify for, to the interest rate you will get on the mortgage.
This makes it a crucial component for first time buyers to understand, says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa.
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He explains that the score range in South Africa is 0 to 999, where 0 is the worst you could have and 999 is the best. Ideally, you would like to be at the highest possible score, however, very few (if any at all) have a score of 999.
“For the best chance of a home loan approval with the best possible interest rate, you want your credit score to be somewhere between 614 and 999. Most people who are considered to have good credit have a credit score between these ranges.”
There are a number of things that could be influencing your score, Goslett warns aspiring first-time buyers.
“Every financial decision you make will most likely influence your credit score because it will count towards your credit history. That is why it is very important to make wise financial decisions from the get go.”
RE/MAX of Southern Africa states that the level of debt you can significantly influences your credit score. Having some debt is better for your credit score than having none at all. If you have debt and are paying it back every month and on time, it shows that you are reliable and capable of paying back debt, which increases your credit score.
“While having no debt is not good, taking out too much debt is even worse. Being blacklisted by a creditor for any reason will leave a long-lasting stain on your credit record that’s difficult to remove.
“Missing payments or not paying on time – even if you make the payment up the next month – will count against your credit score. Schedule any payments as debit orders or set reminders to pay the debt on time, every time,” the agency advises.
Making too many credit applications or enquiry activity in a short period of time could also affect your score negatively. Try to wait a month before applying to a different financial institution if your application was rejected.
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Goslett says that checking your own score before starting the application process is “actually a smart idea”.
“That way you will know if you stand a chance or need to work on it a little more before applying for your home loan.”
It is fairly easy to check your own credit score, and most places allow you to check your score once a month for free. Checking your own credit score is considered a soft inquiry and won't affect your credit. There are four main credit bureaus where you can check your score: Experian, TransUnion, Compuscan, and XDS. Some banks also allow you to check your credit status on their banking apps.
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