MONEY CLINIC | I want to buy a house but my credit score is low, what can I do?

A Fin24 reader with a low credit score is looking to buy a house. Seeking the advice of an expert on how soon this can happen, he writes:

I was in the process of buying a house but due to my being in arrears my application was unsuccessful.

I then decided to pay off some of my debt, as a result, my credit score improved. However, I am left with more debt that is difficult to settle. I want to know, If I pay the remaining debt will it improve my credit score even more? And give me a chance to apply again immediately, considering my payment profile? 

I am in desperate need of buying my own house, but am not sure things will turn around so that I can be approved.

David Bester, Director at MyCreditStatus.co.za responds:

If you settle your debt, then yes, your score will increase, but not as much as you would like to. When you settle an account with a creditor, it sometimes takes a few months to see a significant difference in your credit score. The quickest way around this is to try to negotiate a settlement plan with the creditor provided that they remove the listing from your report. You need to remember that the data on the credit report actually belongs to the creditor and not the credit bureau. This means that a creditor has the ability to remove the listing from your report as well.

So if you have the money to settle this account in full, I would definitely recommend exploring this option.

If the creditor isn't open to negotiations and doesn't want to remove the listing, then your best option would be to repay the debt and use a few other ways to increase your score quickly such as reducing your credit utilisation to less than 30%. Basically, what this means is to use 30% or less of your credit card facility. For instance, if you have a R10 000 credit facility then you should only use R3 000 or less of this facility.

Questions may be edited for brevity and clarity.