How to create a good credit score to enable a property purchase
Having a good credit score is essential when planning to buy property. Banks use your credit score to assess your financial reliability and the risk they take if they decide to lend you the money.
Here’s how to build and maintain a good credit score to help secure your dream home.
Understand what a credit score is
A credit score carries a rating from 0 to 999: the higher the score, the better your creditworthiness. Your score is based on your credit history, which covers your payment habits, the kinds of credit you have and are using, and how much available credit you still have. Credit bureaus like TransUnion, Experian, Compuscan, and XDS collect this data from organisations from which you have applied to for credit, whether it is granted or not.
1. Start building creditworthiness early
If you have never had credit, the credit bureau’s advise that you start applying as soon as possible. They are not encouraging you to have debt, but rather to grow a good credit score. You can do this by opening a credit card account or apply for a small personal loan, but you must make regular on-time payments.
This will assist in creating a good credit history, which is very important when you are ready to apply for a home loan to purchase property. It shows the bank that you can handle your credit responsibly.
2. Pay your bills on time
Your payment history is one of the most important factors in how the credit bureau’s work out your credit score. While it doesn’t impact the credit bureau whether you pay your bills on time, it does change the view the banks have of your financial wellbeing. They want to see that you can pay the money back on time, and that you are responsible about debt.
Make sure all your bills, credit card payments, personal loans, and council bills are paid on time. Late payments lower your credit score and stay on your credit report for years, which can lessen your chance of securing a home loan.
3. Keep your credit utilisation low
Credit utilisation measures the percentage of available credit used at any given time. For instance, if you have a credit limit of R50,000 and use R15,000, your credit use rate will be 30%. Keeping your credit utilisation below 30% is best to ensure a good credit score. The high use of credit is a red flag to lenders, which will hurt your prospects of securing a good house loan.
4. Avoid too many credit applications
Every time you apply for credit, and if there are too many requests, your credit score may come down. For example, if you apply for more than one or two credit cards or loans in a short period of time, it looks like you are desperate for credit. Only apply for credit when you really need it.
5. Use a mix of credit types
Using a mix of different types of credit, can actually help improve your credit score. For example if you have a few credit cards, retail accounts, and a personal loan, and if you are managing to pay those regularly, it shows other credit lenders that you can handle several forms of credit responsibly. It is very important though, to not have credit that you can’t handle comfortably.
Preparing to purchase property means you really have to first focus on your credit score. You can get a home loan on better terms if follow the tips above. In terms of getting your dream property it can make all the difference in the world.
