Having a strong credit score is a valuable financial tool, particularly when applying for a home loan. If you are a novice property investor or experienced, and building your property portfolio, knowing how to improve your credit score improves your chances of home loan approval.
It also ensures better home loan terms.
At IGrow Wealth Investments, our Home Loans team will be by your side to help you understand, regulate and improve your overall credit score.
Table of Contents
- What is a “credit score” and why is it important?
- How do you generate your own credit score?
- What is the purpose of a credit score?
- Why is a credit score relevant for a home loan?
- How IGrow Home Loans checks your credit score
- The best way to improve your credit score
- Improving your credit score in South Africa
- Tracking your credit score with handy credit score apps
- IGrow’s top tips on improving your credit score
1. What is a “credit score” and why is it important?
If you live in South Africa, your credit score is identified by a three-digit number between 0 – 999. Credit bureaus such as Experian and TransUnion work out this score. This depends on how you manage your credit. The point of a credit score is to show financial lenders or relevant parties if you repay your debts timeously or not.
A credit score of 650 + is considered a “good” score. The higher your score, the greater the chance of getting approval for something like a home loan. A “good” credit score will also mean that your home loan terms, such as the interest rate, will be lower.
2. How do you generate your own credit score?
Your credit score starts accumulating from the first instance in which you open a credit account. This could be for a cell-phone contract, a retail shop account, an overdraft facility on your debit card, or a credit card. From this time onwards, your financial behaviour will affect your credit score.
Your payment history, debt owed and the age of your account play a role in your credit score rating. What happens is, credit providers update credit bureaus monthly on your financial movements, and the bureaus will adjust your score concerning this.
3. What is the purpose of a credit score?
Having a “good” credit score opens more doors other than accessing only home loans.
Credit scores determine if you qualify for:
- Personal/car/student/home loans
- Cellphone contracts or retail store accounts (e.g. a Woolies store card)
- Funding for your business
- Rental application approvals
- Reduced insurance premiums
- Online shopping credit e.g. mobicred on Takealot
According to Experian, the South African credit bureau, “ [In 2024 Q 4] … household consumption expenditure continued to improve, albeit only modestly, helped along by the improvement in disposable income following the steep decline in inflation and the falloff in debt servicing costs brought about by lower interest rates.” (Source)
“The application of up to a third of retirement savings towards consumption following the introduction of the two-pot retirement scheme in September also contributed to some improvement in consumer spending in Q4.” (Source).
View one of our blog posts explaining the “two-pot system” for retirees in more detail, and a comparison of retirees opting for property investing versus traditional retirement plans: Retirement Strategy: The Best Strategy for Retirement Planning.
4. Why is a credit score relevant for a home loan?
If you plan to buy a property using financial lenders and banks to finance your home loan, your credit score comes into play. Lenders or banks will check your credit score to assess any risk associated with lending you money to finance your home loan.
This will affect the ease with which you will be able to secure a home loan to be able to buy your dream property! Your credit score gives lenders easy, data-driven insight into how you manage your finances, currently and in the past.
The higher your score is, the more likely it is that:
- Your home loan application will be approved
- You will qualify for a higher home loan amount
- You will be offered a better interest rate as part of your home loan terms.
5. How IGrow Home Loans checks your credit score
At IGrow Home Loans, our team offers a free personal investment consultation where they offer a free pre-qualification service which is done via a full credit check. We then offer you a handy pre-qualification certificate.
IGrow’s bond originators work alongside South Africa’s top credit bureaus to check your score, your financial means and housing affordability, and your overall readiness to buy an investment property.
If you fill in our fee consultation form online, one of our consultants will get back to you. They will guide you through your personal credit profile. The aim is to help you improve credit score areas before our bond originators begin applying, on your behalf, for your home loan approval with multiple lenders. This is to get better home loan approval chances.
6. The best way to improve your credit score
Improving your credit score involves building a trusting relationship with financial lenders.
Below, you will see the best ways to improve your credit score by adopting better financial habits:
6.1 Pay your bills on time
The payment history that you rack up directly affects your credit score. If you default on payments or you are late, this negative effect will stay on your record for as long as five years. If you are “feeling the pinch”, paying the minimum amount you owe is a better move than making no payment at all.
6.2 Use under 30% of your credit limit
Keeping your credit usage low alerts lenders that you are financially sound. To illustrate this, say your credit card limit is R10,000, it is a wise move to keep your balance above the R3,000 figure. This is known as “credit utilisation” and makes up 30% of your overall credit score.
“A budget using the 50/20/30 approach can help you see the ‘big picture’ and is a useful place to start if you are finding it challenging to allocate a total spend to the categories in your budget. In this rule, 50% of your income goes to necessities, 20% to long-term savings, and 30% to lifestyle choices.” (Source)
6.3 Don’t apply for multiple credit applications all at once
Every credit application you make evokes a “hard inquiry” that affects your credit score, and can even lower your score temporarily. If you apply for multiple credit streams, all at once, this raises a “red flag” in the eyes of lenders as you appear “financially strapped”. Only apply for credit when you are in dire need of it.
6.4 Check if there are errors in your credit report
Mistakes are always possible. You may have a closed account that reflects as open on your credit record, or even have payment statuses that are inaccurate. Get a free annual credit report from an app such as “ClearScore” or get a report from “My Credit Check.”
Check and challenge incorrect credit reports with the bureaus directly.
6.5 Keep your old accounts open
Even if you aren’t using an outdated clothing account or credit card, keep it open if it is in a good financial state. Your credit history length or duration improves your credit score with time.
7. Improving your credit score in South Africa
There are various ways in which you can improve your credit score within South Africa:
- Register your details on the Electoral Roll: this confirms your primary address and identity.
- Report your rental payments: Apps such as RentTrack or ClearScore allow you to record regular and up-to-date rent payments to benefit your credit profile. This shows you pay your rent on time.
8. Tracking your credit score with handy credit score apps
ClearScore is a popular credit score tracking app in South Africa, and it’s free (though there are some in-app purchase options). It pulls your data and credit score information from Experian, updating it on a monthly basis.
The ClearScore app offers you:
- A breakdown of your score and what is affecting it
- A user-friendly dashboard to track your credit score progress
- Tips on how to improve your credit score
- It tracks your payment history and alerts you of any defaulted payments which are kept on your record (as mentioned for up to 5 years).
You can download the app on the Apple App Store or Google Play, or by going to the ClearScore sign-up page.
9. IGrow’s top tips on improving your credit score
The IGrow Home Loans team have helped thousands of investors qualify for a home loan and purchase their dream home.
IGrow’s Home Loan Department’s top tips to improve your credit score include
- Check your credit score 6 months ahead of time, when you aim to apply for a home loan. Make sure it’s reflecting as a “good score” and if not, apply some of the advice above to improve your score.
- Make use of budgeting apps so you avoid missing payments.
- Aim to reduce your credit card amount usage and if you have any retail account balances using considerable credit.
- Don’t open new accounts near the time when you aim to apply for your home loan.
- Track your credit score’s positive improvements through an app such as ClearScore.
- Ask our IGrow Home Loans team to do a financial assessment for your pre-qualification for a home loan. We will offer you feedback on weak areas affecting your credit score.
Conclusion
If you understand how to improve your credit score, this becomes the beginning of how to move towards financial empowerment and ultimately purchasing a home through a home loan.
By improving your monetary habits, checking in on your credit score frequently, and by working with IGrow Home Loans, you’re on the right path! In essence, you will improve your chances of home loan approval, and our bond originators will be able to negotiate better loan terms and interest rates concerning your home loan.
Take charge of your credit score journey today! Start the process by checking your score, and allow the IGrow team to guide you through your home loan application process.
Book your free consultation with an IGrow Home Loans specialist today. We’ll help you learn how to use your credit score wisely for your ultimate home loan approval so you can secure your dream home purchase!
