Managing your credit – vital precursor to a successful bond application
As interest rates and the cost of living continue to rise and belts are tightened even further, it’s becoming increasingly difficult to make ends meet, let alone buy property, but if you plan ahead and do the work, acquiring your own home is not as impossible a dream as it might seem.
This is according to Cobus Odendaal, CEO of Lew Geffen Sotheby’s International Realty in Johannesburg and Randburg, who says that dreams are often dashed by the fact that, although most people appreciate the importance of maintaining a good credit rating, not everyone is aware of all the ways in which they can bolster – and hamper – their score.
“It’s not uncommon for a bond applicant to be genuinely surprised when a credit check throws up negative results and their application for finance is declined.
“Many people don’t realise that even seemingly minor things can count against them, including late payments and unresolved disputes with companies, even if they are in the right.
“So, all too often we see financially stable and generally credit-worthy buyers having their property dreams scuppered by long-forgotten debts, often innocently overlooked because of circumstances like moving house.
“And, although they may have originally been small amounts, legal fees and penalties can escalate the amount owing and sometimes there is even a judgement against them.”
Odendaal believes that knowledge is key when it comes to managing one’s credit.
“The more you understand about the factors that affect your credit score, the easier it will be to maintain a good rating, especially if you are planning to apply for substantial finance like a mortgage.”
Important criteria
Although the two most critical requirements are a good credit score with a track record of repaying contractual debt responsibly and being able to afford the monthly bond instalments, banks also take several other factors into consideration.
“For instance, a factor which one would expect to count in an applicant’s favour is having high but unused credit available on retail accounts and credit cards, but the opposite is true,” says Odendaal.
“Banks will automatically include the potential instalments on these unused credit facilities in their affordability calculation, with the rationale being that the applicant could at any stage max out his/her credit facilities.
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