Most homeowners know that having a good credit history can be vital for applying and obtaining a home loan. Yet, more often than not, people do not know how to build up a good credit history or how creditors determine who they will assist and how they will be able to help you finance your loan.
Creditors will use your credit score to decide whether you are a good debtor; if you are a good debtor, the likelihood of them granting you a home or vehicle loan is so much higher. Your credit score does not necessarily qualify or disqualify you for a loan but it gives creditors reliable data that they will compare to their own terms and regulations to help them to decide if they will want to grant you a loan or not.
Even though it may feel a bit daunting, building a good credit history with these budgeting tips is, in fact, as easy as 1, 2, 3:
How to Build Credit
1. Pay your bills on time
This may sound simple enough, but very few people understand the importance of this. If you are able to pay your loans, credit card or store cards in a timely fashion, this will reflect well on your credit rating. Make sure that all of your accounts are in your personal name or else your payment will reflect on someone else’s name. And, if it’s possible, try to pay a little more than the minimum required amount.
Creditors will be able to ascertain whether you are a good and reliable customer from these habits. They would want to know that you can meet the requirements to pay your accounts without any hassles and that you would be a trustworthy client.
2. Manage your spending
Take some time to determine where you have open accounts that you might not be using or those that allow you to get into debt too easily. By closing these accounts you give yourself some room to focus your spending on less arbitrary things, thus preventing you from getting into trouble with debt more regularly.
Fewer accounts also mean fewer credit lines against your status and will lower your risk to lenders. Not buying items on credit and not spending more than approximately 75% of your income will also reflect well on your status
3. Check your partner’s score
If you are married, it pays to check your partner’s credit score as well. If their score is low, you may find that creditors will not be as likely to assist you with your loan.
Sit down together and come up with a plan to have both of you reflect a solid credit score rating. Discuss how you can build good credit together and assess where you may want to cancel financially sapping accounts. Setting up budgets will help you to stay within your means and may even afford you some saving money.
First-time Home Buyers
When you are ready to buy your first home, there are many factors and documents that you have to consider before applying for a home loan. Regardless of your budget, it’s a good idea to check your credit score. As a South African you are entitled to one free check annually, so this would be a great time to do it.
Knowing what your score is will give you an opportunity to improve it if needed. Set up a complete budget to help you identify what your spending habits are and where you can improve.
Don’t overextend on what you can afford; budget and buy within your means. Creditors and banks will not give you a loan for more than you can afford based on your monthly income, so do your calculations to determine what your available budget will be and how much you may be able to afford.