Improving your credit fitness

Financial institutions have relaxed their lending criteria to some degree and have shown a greater appetite for risk during this year with the percentage of bond approvals growing monthly.

However, homeowners will still face relatively strict lending standards compared to the boom period - both in the current market and foreseeable future, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

He says that buyers who want improve their chances of bond approval will need to work on their credit fitness and improve their credit rating score. “Banks generally look at how a prospective homebuyer has conducted their account over the last six months, so if an applicant wants to ensure their optimum chance of approval, they will need to have an excellent credit record for at least the six month period prior to their application. It is important that during this period no late payments have been made as this will negatively affect the applicant’s credit assessment,” says Goslett.

It is for this reason that he says that if there are any unjust negatives on the homebuyer’s account or credit score, they should query them and have them rectified as soon as possible. “Consumers are able to obtain a free annual credit report from each of the respective credit bureaus, which they should do to stay informed about their credit rating. Firstly it will give them their credit score and an idea of where they stand, and secondly it will allow them see if the information provided to the credit bureau is correct,” says Goslett. “Potential homebuyers should lodge an objection against incorrect information such as late payments, collections that are not theirs or any items that have been paid on time and in full and do not reflect as such. It is important that the homebuyer focuses on correcting the larger and more recent issues first. If the buyer has a judgment against their name and the five year data retention period has lapsed, they should have it rescinded as soon as possible because a judgment has a higher weighting than any other negative listing and removing it will increase their credit rating.”

According to Goslett, the law states that consumers are entitled to the credit they can afford.  This means that if the homebuyer has any existing credit facility that they are not using, such as clothing store cards, it will be taken into account when the financial institution is determining affordability. He advises that where possible, these un-used accounts should be closed.
“The fewer different credit facilities you have the better. However, this does not mean that homebuyers should consolidate all their credit but rather aim to reduce lines of credit, as the fewer they have the better. Credit cards and other forms of revolving credit could also reflect badly on a potential homebuyer because it indicates that they are in need of credit regularly. If it is not possible to close these accounts, then it is important that they are managed correctly,” says Goslett.

He notes that paying revolving credit down is generally more beneficial than paying down other types of loans. Goslett says that cards that are close to their limits should be paid down first to ensure a speedier credit improvement due to the gap widening between the limit and the balance on the card.  As a rule of thumb, always leave a 30% or higher gap between what you owe on the card and the card’s limit - lenders will look for this minimum gap.

“If a homebuyer is applying for finance with their spouse or someone else who is standing as security, they should also ensure they have a favourable credit record as this will affect the approval process and have a bearing on the good impression the homebuyer is trying to create,” advises Goslett. “It is vital that homebuyers take the necessary steps to ensure their credit record is in good standing to gain lender approval, especially if they are only months away from a purchase,” he concludes.

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