How your credit score affects your chance of getting a home loan | Fin24
 
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How your credit score affects your chance of getting a home loan

Apr 07 2016 10:24
Steven Barker

If you’re thinking about buying a home, you will most likely need to apply for finance, as most of us can’t afford to buy a house with cash. In this case, a good credit score is crucial to get approval on a home loan (bond), as well as for future financial success and stability.

For most people, a bond is crucial to get onto the first rung of the property ladder. Owning property will have a massive impact on your future lifestyle.

However, many people don’t know that there are a few conditions that must first be satisfied. One of those is to have a good credit score.

Your credit score or rating is attached to your credit record, arguably the most important piece of financial information about you: it’s a comprehensive record of your credit history – the money you have borrowed, whether you have repaid that money and if you repaid it on time.

Every time you apply for a loan from any financial institution, this record is checked. A glowing history of consistently repaying debts on time and in full will bolster your chances of an approval, as it indicates to the bank that you are financially responsible.

Of course, a bad credit record of missed and late repayments means the opposite.

It is advisable for consumers to know where their credit score stands before they apply for home loan finance.

Fortunately, it is easy to keep track of your credit record; by law you are entitled to one free report every year. One can make use of various credit bureaus that are able to assist with making available your credit score.

However, you can also be proactive and seek to improve your credit score, some suggestions include:

1. Pay your bills on time. Late payments will have negative consequences on a credit score.

2. Take out debt only as needed. Make certain that you are able to afford the required instalment as well as create buffers for interest rate changes. Furthermore applying for credit leaves a “footprint” on your record and financial institutions are able to view the frequency of credit applications.

Even if buying a home is not on your cards yet, safeguarding your credit record should be, because you will need a good score when you eventually enter the market.

Property is an asset often a cornerstone of retirement strategies – so a long-term, protective view of your record will help you ensure future prosperity and wellbeing.

*Steven Barker is head of home loans at Standard Bank.

personal finance  |  credit record  |  home loan
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