How credit record affects buying home - Finance, Advice
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16 Mar 2012

How credit record affects buying home

Many prospective homeowners have no idea how their credit records and the manner in which they previously serviced their monthly account obligations can affect their chances of owning their dream home.

Every credit active consumer has a credit rating, which credit providers may use to determine the interest rate that they will charge a consumer to repay a loan. Your rating may also play a role in determining the amount of any deposit you may be required to pay as a prerequisite to the loan being granted.

Credit Ombud Manie van Schalkwyk says some consumers are aware of the fact that credit bureau records will affect whether or not they will be granted a loan, but what most people do not know is to what extent their records may affect the terms of their home loans should they be granted one.

Every credit active consumer has a credit rating, which credit providers may use to determine the interest rate that they will charge a consumer to repay a loan.

Your rating may also play a role in determining the amount of any deposit you may be required to pay as a prerequisite to the loan being granted.

Recent statistics released by the National Credit Regulator (NCR) reveal that credit bureaus currently hold records of 19.10 million credit-active consumers. Of this number, 74% of the total enquiries made on consumer records were from banks and other financial institutions.

Credit providers are obliged to determine your debt repayment history and your existing financial means and obligations as part of their affordability assessment prior to granting you credit, says van Schalkwyk.

They do this by obtaining your credit records from the credit bureaus which they subscribe to, he explains.

According to the NCR, the number of consumers with impaired records is 8.83 million. Having an impaired credit record does not have to be the end of your plans to purchase a home.

“Although it may take some time, there are steps you can take to improve or repair your records in order to stand a better chance at getting your home loan approved,” says van Schalkwyk.

He advises consumers to do the following to assist in repairing their records:

  • If you have defaults on your profile as a result of missing payments due to financial difficulties, pay all the accounts religiously - records of defaults will be removed from your profile after two years.
  • The manner in which you pay your accounts on a monthly basis reflects in your payment profile for five years, so ensure you pay your accounts regularly and your payment profile will reflect a good payment history
  • Consumers should close off accounts that are fully paid up and no longer in use as these add to the number of accounts appearing on their credit report.

Some consumers, regardless of having clean credit reports have at times had their applications for financing rejected by credit providers. One possible reason for this can be that the affordability assessment done by a credit provider shows that the consumer cannot afford the loan.

Having too many open accounts, even though they are paid up and no longer in use may also work against you.

Potential credit providers can view a consumer who has too many open accounts, as high risk as the consumer technically has access to credit from those accounts, cautions van Schalkwyk. “If a consumer decides to use those accounts in future, they can end up being over indebted and unable to service all their accounts.”

To avoid disappointment at a point where you have signed an offer to purchase for that dream home, get a copy of your credit report before applying for a home loan and, if necessary, start taking the necessary steps to improve your credit rating.

Credit reports can be obtained from the various credit bureaus and every consumer is entitled to one free credit report once a year.

Consumers can contact the office of the Credit Ombud to lodge a dispute with regards to credit bureau matters on 0861 66 2837 or www.creditombud.org.za.   

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