How to boost your credit score to afford your dream home
Category RealADVICE
Just as how earning a steady income plays a vital role in buying your dream home, so does your credit score. Your credit score can determine your eligibility for getting your home loan approved. In South Africa, having a healthy credit score can increase your chances of securing finance for your new home.
How is your credit score determined?
When you wish to apply for a home loan the bank or financial institution will do a credit check and work out your credit score. They will then use your credit score to establish your financial behaviour, the interest rate and deposit you are entitled to, and also decide if they are willing to grant you a loan to buy your new property or not.
Institutions prefer lending money to those whose debts are less than 36% of their gross income and consider those who score above 650. The higher your credit score, the better your advantage when applying for a home loan. In most cases, a higher credit score makes it easier to get finance at lower interest rates. However, if you have a low credit score, lenders will consider you as a high risk and either not approve your loan or offer you a high-interest rate on the loan.
How to improve your credit score
These are a few simple ways to improve your credit score and secure the home of your dreams.
Pay your bills on time
Paying your bills late will have a negative effect on your credit score. Lenders want to know that they will be getting paid on time and do not have to run after you for their money. Lenders are able to trace if you are constantly paying late or in arrears. For convenience, ensure that your rent, utilities, phone bills and other expenses are debited on a specific date so you do not have to physically pay them.
Keep your credit cards in tact
Making regular credit card payments and keeping your balances as low as possible shows that you are able to manage your money and you do not go over your credit means. As credit cards are also most likely to have the highest interest rates, it is advisable to pay off the debts with the highest interest rates first.
Get rid of unused accounts
Lenders often see having many credit accounts as a high risk. If you no longer need certain credit accounts, you should close them. Unused accounts can still cost you money with annual fees and subscriptions. Once your account has been closed be sure to instruct your creditor to notify the credit bureau that you have taken the step to close the account and not the creditor.
Having no credit history
While having a low credit rating is bad for you, having too little or no credit history will also stand in the way of you getting a loan for your dream home. In other words, your credit worthiness is also established by the period of which you have been an active credit consumer. The shorter your credit history the lesser chance you have of scoring high on your credit score. If you have no credit history, it is wise to apply for a credit card with affordable rates and fees. The key is to ensure that you pay it off in full before the interest rates starts kicking in.
Whether you are in the market for a new home now or planning for the next few years, it is wise to think ahead and secure your financial future. Contact RealNet Glen Erasmia now for more insight on how to boost your credit score to purchase your dream home.
Author: RealNet
