HOW TO BUILD A GOOD CREDIT HISTORY
Those who aspire to buy a property will require a favourable credit record to improve their chances of bond approval. Just as important as a positive credit score, is an established credit history that shows that you can favourably conduct your credit responsibilities. Your credit record will have a bearing on whether your bond is approved, as well as the interest rate at which the bank will finance the deal. Credit information is used by banks to assess the probability of the applicant defaulting on their payments, providing insight into whether the loan is a low or high risk. Consumers who are just starting their careers will need to ensure that they take the necessary steps to build a good credit history.
Banks will generally look at how a prospective homebuyer has conducted their credit accounts over the last six months. For this reason, if you want to ensure the optimum chance of approval, you need to have an excellent credit record and history for at least six months before submitting your application. Establishing a credit history can be slightly challenging because lenders are extra cautious of new applicants. Here are a few tips for establishing a credit history:
Just Like Rome, Credit isn’t Built in a Day
Don’t apply for credit at too many places but rather only approach reputable credit providers. Instead of applying everywhere hoping for a positive response, it is best to start slowly and only apply for small, manageable amounts at a time. Applying for too much credit will send the wrong message to the lender, as it will make you appear desperate. Also, only apply at one place at a time, as too many applications to credit facilities could have the opposite effect and negatively impact your credit score. Pay off accounts as soon as possible and be sure not to take out more credit than you can afford to pay back.
Mind the Gap
On average, a consumer will require at least three lines of credit. With less than that the credit history can be considered too thin, however, more might be viewed as too much. Ideally, make sure you always leave a 30% or higher gap between what you owe and your credit limit as lenders will look for this minimum gap. It is also vital to have the necessary disposable income required for bond approval in the future, so work out a strict budget and stick to it.
Two is Better Than One
Rather than having one type, diversify and have different kinds of credit accounts as this is viewed favourably by credit score algorithms. You should not just have revolving credit, but, where appropriate, a closed-end loan or account such as a car loan. While variety is good, how each of the accounts is managed is still far more important. All the accounts must be paid, according to the loan agreement, with no late payments. Correctly managing your credit accounts will reflect responsible financial behaviour.
Save Money and Money Will Save You
Putting money aside in a savings account will reflect financial discipline and stability while at the same time building a deposit. Having a deposit saved up will stand you in good stead and improve your bond approval chances.
Even with an established credit history and record, you still need to show the necessary levels of affordability required by the bank. When you start the search for a new home, especially for the first time, be realistic and budget accordingly. Make sure you know what you can afford and start taking the necessary steps towards achieving a healthy credit record and deposit amount.