“A good credit record is essential when banks look at the financial history of a client,”
says Kay Geldenhuys, Property Finance Processing Manager at ooba, South Africa’s largest bond originator. “When banks look at a potential home buyer’s profile, they check their credit history and risk profile to be certain that they can afford the monthly repayments and that they have a record of paying back credit responsibly so that the banks’ investment carries the minimum risk.
When Mary completed her Law degree, she decided to plough as much of her salary back into paying off her student loan as she could afford. “Being headstrong about settling the debt definitely paid off when I decided to purchase my first home and was put through the rigours of a credit check to see whether I’d be a safe bet for a home loan.” Mary was diligent in ensuring that her debt repayments were always up-to-date, “I’d seen from friends that not paying outstanding debt can really hinder one’s credit record. They’d sometimes pay later than the instalment due date or pay a bit less, but this really damaged their credit record.”
Few consumers realise that a default on any debt repayment may be reflected in one’s credit rating. Settling an outstanding debt does not automatically guarantee a favourable credit score as the repayment history of a debt remains on the consumer’s credit record for two years. “One of the golden rules about credit is that you can’t get it until you’ve had it,” says Geldenhuys, “While it may seem financially responsible not to get into debt, the banks have no other way of assessing what you will do with credit.
“So proving one’s future credit-worthiness by having some existing debt is useful; however, paying these debts off responsibly, on time and at the correct monthly instalment, or even a little more, is the most important factor.”
Ideally, consumers should educate themselves about their credit rating and apply for their free report annually. “There are 11 registered credit bureaux in South Africa who can provide assistance,” says Geldenhuys. “But remember that a home buyer needs to maintain their good credit rating even after their bond is approved. If their credit rating goes bad before transfer takes place, the bank has the right to withdraw their offer of home loan finance.”
To afford her new home and be certain that she’d never drop the ball with her finances, Mary also drew up a budget to help manage her money so she always knew what she could responsibly afford on credit. “It sounds boring, but the discipline gave me the joy of a clear conscience, and a clean credit rating,” she adds.