Managing your credit record
Even a high salary and a substantial deposit will not ensure the success of your home loan application if your credit score is low.
Lenders will always look for stability and reliability in a potential borrower, and a good record of paying off previous debt such as a student loan, a credit card balance or a car purchase will go a long way towards boosting your credit score and securing the approval of your home loan application.
Consumers seeking credit should never try to cover up any previous money problems. Your credit record in this country is easily traced by the lending institutions, who have access to information about how you manage your finances from a multitude of sources, so if there has been a payment default in the past it is far better to be honest about it.
The fact is that most people have had some money trouble at one time or another, and that as long as you have dealt with it responsibly and established a new pattern of wise financial management, it should not preclude you from being able to obtain a home loan.
It is easier than most people think to build up a good credit history and improve your credit score, by sticking to the following guidelines:
- Always use exactly the same name and surname combination for credit applications and credit cards, so that there can be no confusion about which credit lines belong to you, or misunderstanding about how much credit you currently enjoy.
- Never run joint accounts. One person’s credit problems can haunt another’s credit rating for years, even if they were created before they had a joint account. And in the case of divorce, any existing joint account should be terminated immediately.
- Never pay late. When you open your municipal account or credit card statement, for example, you will see both a “payment due” and a “due date”. Make sure you make all payments due no later than 30 days past their due dates, or there will be “late payment” entries on your credit record that could cost you your home loan.
- Don’t use your available credit too much. Maxing out your credit card every month, for example, can really hurt your credit rating, even if you diligently pay off the whole balance due every payday. What matters to lenders is how much of your available credit you use each month, so try to keep the balances as low as possible on all your lines of credit.
- Make sure to use some credit. If you have been scared off purchasing anything on credit and always use cash only, you will have difficulty proving that you can manage accounts and monthly repayments. Also if you have had accounts in the past and no longer use them, you need to formally close them yourself or they could show up as default/ abandoned accounts on your credit record – unfair as that may seem.
- Sweat the small stuff. Check your own credit record once a year to see if there are any problems you didn’t know about. Errors do occur and businesses make mistakes, and you need to address these as soon as possible. But you could also have unpaid bills you were not aware of or thought you had paid – especially if you have changed address a few times – and these cause your credit score to plummet if they go unresolved.
- Save for a deposit. You don’t have to put all your savings towards this goal but there’s no doubt that lenders are more inclined to grant loans – and interest rate concessions - to those who have demonstrated the financial discipline to save, and who are prepared to invest at least some money in their own properties.
- Don’t allow too many credit enquiries. Each time you apply for credit and the credit provider generates an enquiry, it shows up on your credit record, and too many enquiries can damage your credit score, because it looks as though you are trying to borrow too much. However, multiple enquiries within a two-week period are usually “read” together as one enquiry, so if you are “shopping around” for a home loan, you should be sure to collect the quotes from various lenders within 14 days