Credit score must-knows: How to get your home loan approved – part 1

By Newsletter

Your credit score is one of the most important elements in your home loan application, influencing everything from the final amount of the loan to the interest rate and ultimately the monthly repayment on the home loan. In this special 2-part article we will consider some of our clients’ frequently asked questions about their credit score and why it is so important to your home loan application.

On the back of a good credit rating, you have the potential to be granted a favourable bond and refinancing rate by the banks, while the application is likely to be declined if you have a bad credit rating.

Your credit score is reflected as a number from 0 to 999 and is calculated after considering various aspects of your credit profile, such as your debt history. Essentially, it is a numerical indication of your financial decisions, a combined summary of your financial background with an overview of your credit score, financial accounts, profile, and rating. It measures the amount of potential risk you would be to the financier and guides lenders, such as banks, as to whether they should lend to you or not.

How does my credit score work?creditreport-580x358

The higher your score, the better your ‘credit health’, which means it will be easier for you to borrow money at more favourable interest rates. A low score means you are considered a higher risk, which in turn could have a negative effect on the outcome of the credit application.

By effectively and carefully managing your credit profile, you can ensure your image is viewed favourably by lenders. Conversely, a bad credit score could result in almost no financial institution willing to offer you a home loan.

Credit score guideline:  

Credit score table

How is my credit score calculated?

A credit bureau, such as Experian or TransUnion calculates your credit score based on your credit report. How you pay your bills, how much debt you have and, importantly, how your activity compares to other credit-active consumers is all taken into account and reflected in an overall score.

What influences my credit score?

When you transact with the banks and retailers you start creating a financial history, including a credit history that is determined by the amount of money you have borrowed in your life and how much you have paid that back.

Credit score is affected by the following:

  • Missed or late payments – even if you make a double payment the following month, the missed payment will affect your credit history. Once the account is settled any impending legal action or adverse legal information is immediately cleared but the negative repayment history will still be reflected on your credit history for a couple of years.
  • Too much debt – how much of your available credit you’re using is taken into account. A good guideline is to limit your use of your credit to 35% of your maximum credit facilities.
  • Being blacklisted – if you have a negative court judgment against you this will be reflected in your credit score.
  • Length of credit history.
  • Account application and enquiry activity – information such as how many account applications you have submitted, how many new accounts you have opened and whether your account payments are up to date.

Contact IGrow Wealth Homeloans on 021 979 2501 or email our head of Homeloans, Madelein, on to discuss your credit score and how to ensure you get the best home loan possible.