Why you need a good credit score to get a home loan
A good credit score is vital when it comes to applying for a home loan, finds Angelique Ruzicka.
Most of us aren’t in the fortunate position to buy a home with cash. Therefore, home loans are common and an important avenue for those who want to get onto the property ladder. But to get a home loan it’s vital to have a good credit score.
“For most people, a bond is crucial to get onto the first rung of the property ladder and plays a pivotal role in future lifestyle,” says Steven Barker, head of home loans at Standard Bank. “However, many 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. It reflects how well you’ve handled 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. A bad credit record of missed and late repayments means, of course, the opposite.
“It is advisable for consumers to know where their credit score stands before they apply for home loan finance,” says Barker. Fortunately, it is easy to keep track of your credit record; by law you are entitled to one free report every year. You can make use of various credit bureaus that are able to assist with making available your credit score.
If you find that your credit score is not what it should be there are a few things you can do now and in the future to ensure you have a glowing report:
- Pay your bills on time: Late payments will have negative consequences on a credit score.
- 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. Don’t apply for multiple loans. Applying for credit leaves a “footprint” on your record and financial institutions are able to view the frequency of credit applications.
- Take action now rather than wait right up until the moment that you need a major loan like a home loan. “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,” explains Barker.