Why your credit score matters when renting or buying a home

Whether you are looking to rent or buy your first (or subsequent) home, one of the first things that will be checked before you will be approved is your credit score according to the Seeff Property Group.

You must ensure your credit history is healthy and that you maintain a good credit score.

A credit score is a point system which reflects your credit worthiness and how well you pay your accounts and manage your financial well-being.

It is a vital tool used by banks, rental and estate agents and other parties to assess your affordability and history relating to keeping up with credit agreements and payments.

You need to build up a good credit history
To achieve a good credit score, you will need to build a credit history according to Gerhard van der Linde, MD for Seeff Pretoria East.

Without a credit history, it makes approvals for a home loan and rental property more difficult because a creditor cannot assess your affordability or payment history.

A credit record is built by taking out credit such as a cell phone or store account, or a loan from a bank.

You will need to build up a record over a few months before it could be assessed as an adequate record.

Any late or skipped payments will unfortunately reflect poorly and will bring your credit score down. This means that you will need to first correct the record by getting your payments up to date and showing a few months of regular payments.

Also vital to a good credit score is to keep your debts to a minimum and not overextend yourself insofar as monthly repayment commitments are concerned. If you are overextended, it will affect your credit score and will count against your affordability.

Keep outstanding account balances low and do not take on too much credit. Ensure your credit card limit is set as low as possible. Remember, all outstanding debt will be offset against your earnings and assets to check affordability.

Keep track of your credit score
Your credit and payment history is tracked by various credit bureaus. All consumers are entitled to receive one free credit report annually. You can also contact them if you need to check your credit record, but there is usually a cost involved.

A credit score works on a scale (noted below).
Generally, a score above 670 is regarded as a “good” score and below 600 as “high risk”.
781 to 850 – Excellent
661 to 780 – Good
601 to 660 – Fair
500 to 600 – Poor
300 to 499 – Very poor

You must keep an eye on your credit because, depending on the severity of the issues, it could take upwards of three months to a year to turn around a poor credit profile.

Keep your credit in check once you have an approved home loan
Once you have put in your Offer to Purchase a property and a home loan is approved, you mustn’t do anything which might affect your credit standing. The banks usually have standard terms and conditions in terms of which they could withdraw their loan offer at any time before the transfer is registered.

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