Property is one of the most wonderful investments you could make. Getting your credit profile sorted is a big and necessary step to succeeding at your home loan application and obtaining your own. Experts suggest that investing a portion of your monthly salary into a home loan in order to secure your own property is a far better financial investment than paying rent on a monthly basis to finance someone else’s bond. Credit score is categorised according to its level of risk, ranging from very high risk (bad credit score) to minimum risk (good credit score). In South Africa, a minimum risk ranges from a credit score of 650-999, with 700 considered a good score and anything above 767 being excellent. Your credit rating is something you can start immediately working at improving. Below are a few top tips for keeping a healthy credit score.
Cover all your bills on time
Make sure that you pay all of your outstanding bills on time. Approximately 35% of your credit profile is based on your payment history, meaning late payments will negatively affect your score. Even if you haven’t been the most consistent with paying your bills on time in the past, you still have the opportunity to get back on track. Paying a little more than the minimum monthly requirement along with a history of prompt payment will do the trick!
The 50/30/20 rule
US senator, Elizabeth Warren and her daughter Amelia created a rule of splitting your income in three parts: 50% for your monthly essentials (needs), 30% for personal spending (wants) and 20% for your financial goals (savings, investments, etc.), with the money set aside for your financial goals in a separate account.
Minimise your overall debt and maintain low credit card balances
The higher your credit card balance is in relation to your credit limit, the worse the implication for your credit score. 30% of your credit score is based on your outstanding percentage of debt. Experts suggest keeping your debt percentage at no more than 20-30% of your income. A track record of good debt repayment also makes it easier to open new accounts.
This begins with reducing your overall consumption to ensure that you have enough disposable income to cover your debts on overdrafts or your retail accounts. As previously mentioned, paying slightly above the minimum amount required to clear your debt as this is a good habit for becoming debt-free faster. Keep this habit going until you manage to get your total debt below 30% of your income, or even better – clear it.
The older the account, the better for your credit score
Naturally, it’s a lot easier to gain new credit if you have a good track record. 15% of your total credit score is dependent on the age of your credit accounts, so a longer history of good credit is beneficial. Closing older accounts to open new ones could mess up your credit rating algorithm as it is a sign of poor credit management. Keeping your older accounts such as your credit card and making the monthly repayments signals good financial management, making you a much more favourable candidate for receiving a loan.
Good management is golden
10% of your total credit score is based on the way you manage your debt. Therefore, paying off your debts with high interest rates is good but it’s wise to keep an account or two open that you’re able to comfortably pay off monthly in order to show that you are able to manage your finances well. Contact the credit bureau once you’ve gotten your debt down in order to update your profile and have your past judgements removed from your profile.
Timing is everything
10% of your total credit score is based on the amount of new loans or loan inquiries you’ve made over a particular period of time. Therefore, wait until you’re completely ready to take out a bond before you make enquiries and complete the process within 45 days so it’s seen as a single loan enquiry. The search for a single loan versus multiple loans will once again signal better management.
Remember to be as consistent with maintaining a good credit score as possible, as it will greatly benefit your future financial decisions.
Once you have succeeded at your home loan application and you want to renovate your new space to fit your personal preference, please pop down to your nearest Tiletoria where our friendly staff will be waiting to assist you.