While it is common to have many home loan applications declined for various reasons, there are other ways to increase one’s chances of approval.
In short, your credit score is based on your financial behaviour towards your creditors.
This is according to Peter Jones, group general manager of the Integrated Property Group of companies and developers of Bardale Village.
Jones explains that Integrated Housing Development’s (IHD) customers have over the past two years experienced an insignificant 40 percent success rate when applying for loans at IHD’s Bardale Village development in Blue Downs, Cape Town.
Word has it that other developments have experienced similar and even worse rates of success in other parts of South Africa, he notes.
Why are so few home buyers successful? The banks are by all accounts very enthusiastic to grow their property loan business, but why is growth so slow?
With so few applications succeeding, business could have grown by more than double if most applications were accepted.
Analysing the reasons for the declines by the banks reveal that by far the major reason is that buyers fail to qualify due to a low credit score, he says.
Credit scoring and how it works?
In short, your credit score is based on your financial behaviour towards your creditors and these include things such as:
1. Have you paid your creditors back in time and in full? Balance owing on all your credit accounts, what type of accounts and how they have been handled are taken into account when scoring.
2. For how many years have you been a borrower? If you have a longer credit history it tends to positively impact on your score.
3. How much of your available income is allocated to paying your debt to creditors?
4. Retail stores and banks’ default listings will remain on a credit profile for two years and any judgment against someone will remain on their profile for five years.
5. A score of 660 or higher is considered to be a very good score.
6. Consumers with credit scores in this bracket have a higher chance of gaining finance.
7. Consumers with scores below 620 will find it more difficult to get credit as they will be regarded as “high risk”.
Click here to read more about credit scoring.
Jones says there is no place to hide in today’s new world of electronic database information sharing by companies, so it is important to ensure a good record with all the companies.
“Even small credit accounts will influence your credit score and all this data is available to any company through credit rating agencies.”
The good news is that the National Credit Act (NCA) enables consumers to a free credit record check during a 12 month period - consumers should take advantage of this and reassure that their credit record reflects the correct information.
Consumers are able to gain a free credit check from each of the bureaus - namely Experian, TransUnion and XDS, they will thus be able to check and manage their credit rating every four months.
All you need is your ID, a bank statement and proof of physical address and to register with an agency like Experian (www.experian.co.za)
Tips on getting a clean record:
1. Paying credit accounts on the due date will increase your credit scoring.
This includes accounts such as credit cards, retail accounts, and instalments on loan accounts such as vehicle finance, personal loans and bond repayments.
2. Should you owe money on any account it won’t necessarily lower your credit score, however, some financial institutions might feel uneasy to grant additional credit to someone they feel is overextended.
3. In some cases it is better to have a small balance on an account than no balance, as long as the account is managed responsibly.
4. Avoid being close to maxing out your credit card’s limit.
5. Opening many new accounts in a short time will negatively impact your credit score and be seen as a high risk.
6. Re-establishing credit on old mismanaged accounts and making payments timeously again will raise your score over a certain period of time.
7. Late payments will reflect negatively on credit rating.
8. Do not ignore a legal letter from a creditor - act on it immediately.
Jones notes that many unsuccessful applicants put the blame on the banks, the NCA and just about everyone but themselves.
The reason South Africa survived the international banking crisis was because of the stringent lending and credit environment.
So save up for that 10 percent deposit and start to clean up your credit record, and become one of only 40 percent of home loan applicants that can access credit for that home of your dreams, he adds.
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