Here’s why your credit score is so important – and how to improve it

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Despite dire predictions by industry commentators regarding the plight of the Covid-19 housing market – a recent surge in mortgage applications indicates consumers are firmly on the path to the residential real estate market.

Rhys Dyer, CEO of Ooba Home Loans, said 100% bond approvals, lenient lending criteria and dramatically reduced house prices are responsible for a recent surge in bond applications. In fact, the mortgage industry has seen unprecedented levels of activity for years, especially among first-time buyers.

However, bad debts and bad credit records make some wonder if they can afford a home, even in the most favorable economy.

“In September 2020, first-time buyers accounted for 55% of Ooba’s application volumes, a 40% average to high increase. Most applicants (67%) are looking for a 100% deposit request. In some cases, it’s actually more profitable to buy than to rent in today’s climate, ”said Dyer.

Do you have a bad debt?

However, bad debts and bad credit records make some wonder if they can afford a home, even in the most favorable economy. According to statistics from Ooba, 8.4% of mortgage applications are refused due to bad credit scores and 7.7% due to affordability.

Dyer said that understanding, correcting and, if possible, “improving” your credit score is the best way to get a home loan. “Many South Africans still don’t know their credit rating, despite all the free and easily accessible online tools. “

“It is often only after a home loan application is turned down that people realize that organizations are aware of their credit history and that this history could be far from perfect,” a- he declared.

The “get the debt now, pay off later” approach has led to an ongoing battle between consumers and financial institutions, often resulting in bad debts and bad credit scores.

What your credit rating says about you

A credit score of 600 and above is required to qualify for a bond. Rhys advises, “If you don’t qualify, either because of a bad credit score, no credit rating, or because you can’t afford the monthly repayments, you have several options,” he said. said Dyer.

“If your credit score is the problem, you need to build a good credit history. If you don’t have a credit score, try small retail accounts or a cell phone account, and pay it off on time and in full, if not a little more, each month.

For those with bad credit, try to settle the outstanding debt as quickly as possible. “Strengthen your credit score by paying your bills on time, taking out debt and reducing expenses where possible,” said the managing director.

If affordability is a challenge, Dyer suggests prequalification to make sure your affordability meets the bank’s criteria. “Knowing what you can afford will guide your decisions and save you a lot of time in the long run,” he said.

10 tips to improve your credit score

  • Avoid late payments: “Pay your debt on time, every time”.
  • Never pay less: “Make your minimum debt payments each month and, if possible, pay more than what is required. Failure to do so will damage your credit score ”.
  • No flaw: “The breach of a payment obligation may result in a judgment against you”.
  • Too much debt is not a good thing. “Do not maximize your credit facilities, it will have an impact on your score.”
  • Avoid different credit cards: “Avoid having a lot of different credit cards and personal loans to maintain payments. This type of debt can definitely lower your score ”.
  • Avoid frequent applications: “Avoid applying for new credit card facilities or regularly increasing existing credit limits. A high volume of credit checks are done by banks and retailers against your ID number and this can weaken your credit score ”.
  • Say no to the surety: “If a friend or family member asks you to sign a bond on their debt contracts, say no. This can harm your credit report and your score in the event of default ”.
  • Reduce your lifestyle: “Rather than living on your credit card and going into debt to maintain your current lifestyle, instead change your lifestyle to suit your financial situation. It is impossible to maintain debts if you eat money that you cannot pay off ”.
  • Some debt is good: “Having healthy debt is a good thing. Not having a credit repayment history will affect your credit score ”.
  • Beware of Debt Reviews: “Don’t apply for a debt or insolvency review unless there is no other alternative. The effects of this will have a big impact on your credit score ”.

Read: More South Africans are falling behind in paying their debts

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