Maximise your credit rating

Private Property South Africa
Cathy Nolan

When you apply for a home loan, there are a number of factors that influence your credit score. Generally, financial institutions strive towards a maxim of “only those with good credit need apply”. There are institutions that will lend to those with very low credit scores, but these loans often come at exorbitant prices and end up costing much more than the original purchase prices.

If your credit score is mediocre, you’ll probably end up paying a lot more than someone with a very good credit rating. Before applying for a bond, pay attention to:

  • Payment history: This includes payments that have been missed or paid late, as well as the different types of payments that you make each month (car, credit cards and so forth). About 30 percent of your credit score is determined by your payment history. It’s important to show consistent payment on time each month.

  • Amount owing on accounts: If you have dozens of accounts with high balances then a good credit rating is obviously going to be hard to come by. Try to keep most of your debt traceable to just one or two accounts, such as your existing mortgage and car payments.

  • Length of credit history: This has to do with whether or not you’ve established sufficient history to provide an accurate portrait of how you manage your finances. Lending institutions are interested in whether you have a history of paying on time. If you have managed your credit perfectly, but your account is only a year old then this is unlikely to raise your credit score.

  • Types of credit: If the credit you use weighs heavily on credit cards and other high-interest sources, then your credit score will certainly suffer.

  • New or recent credit history: This has to do with any new credit accounts that you may have opened and whether or not you’ve made requests for new credit. If you open several accounts at once, this could hurt your credit score. A person with good credit usually has a long history with a few accounts that are in good standing.

The importance of paying your bills on time every month cannot be stressed enough. Many banks have the option of scheduling automatic payments each month and it is advised that you make use of them. Also, don’t open credit accounts if you don’t intend to use them, and don’t open and close accounts frequently. Instead, focus on using the accounts that you already have responsibly. This alone will raise your credit score and make it much more likely that an institution will grant you a loan at a good rate.

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