First-time buyers, don't neglect your credit score

Buying your first home is an exciting milestone in your life. Right now, it's a buyer's market, making your property dreams more reachable than ever. Before you start your journey, knowing what you can afford is vital. And for that, you're likely to look for an affordable home loan. Your credit score can impact your application. Take the time to understand how it works and learn what you can do to overcome this obstacle.

What is a credit score?

Your credit score is a three-digit number ranging from 0 to 999. It tells loan providers how well you manage your debt. A high score shows you run your personal finances well and are a safe bet to trust with a loan. 

Credit score ratings differ between providers. Generally, you'll want a credit score above 650. This makes it more likely to secure a home loan. You can qualify for a home loan with a lower credit score but will wind up paying a much higher interest rate. 

Importance of a credit score

Your credit score is an asset. A poor credit score or no credit score can affect the success of your loan application. A good credit score can help you gain a favourable mortgage and refinancing rate, and manageable interest rates on your loan. Even if you secure a loan with a poor credit score, it might not be the amount you need. Finally, a good credit score can help you get an approved home loan. This is your gateway to a FLISP subsidy which many first-time buyers turn to for assistance.

How to check your credit score

Your credit score is contained within a credit report. This report is a record of your credit history and payment behaviour. You can request your credit report from recognised institutions like TransUnion, Compuscan, Experian, or Xpert Decision Systems (XDS). The National Credit Act allows you to get one free credit report every year. You should take advantage of this to make sure you're in good financial health. 

What impacts your credit score?

After viewing your report, you may wonder how your credit score was reached. Credit bureaus take a number of factors into consideration. These include:

• Your account payment history: they evaluate how well you managed your accounts and whether you paid your balances on time.
• How long you've had your account/s: they check if you have a consistent credit history with longstanding accounts.
• Your credit range: they see if you have a mix of credit from store accounts, credit cards, and service contracts. 
• Frequent credit checks: they take note if a number of loan enquiries have been done on your behalf.
• Court judgements: they check if a court has ordered you to pay an outstanding debt.

If your credit score is low, have no fear. There are a number of steps you can take to improve your profile. 

Ways to boost your credit score

Apply for a credit card: Having no credit history can work against you. Signing up for a credit card and using it responsibly can help. Gradually take on different forms of credit to diversify your credit history but don't go overboard.

Close unnecessary accounts: Accounts that are unused affect your score. If there are any that you don't use, close them ASAP. Also, look out for unused subscriptions and services that are draining your finances. 

Check your report: If you haven't, do check your credit report. It can help you pick up on any irregularities that could hinder your home loan application.

Become a savvy spender: Ensure you pay your bills fully and on time. You should also try to minimise any debt to your name before applying for a loan.

Manage your debt: Debt happens. But, you should put together a plan to ease it. Start by paying off small loans first and then chip away at larger amounts. You can also request assistance from your bank to come up with a solution.

When buying property, credit is just one of the challenges you can expect. Thankfully, you have property experts ready to assist. Talk to De Lucia Group about your property goals and let's work together to make it a reality. View our properties for sale, send a message, or call Michael De Lucia directly on 082 493 1089. 

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