Preparing for a home loan – how to protect your credit
When deciding to apply for a home loan, there are a few things you should take into consideration before approaching the bank or lender. Especially with the new National Credit Act, you should prepare your credit status so that you can fit the profile of a homeowner.
Banks no longer only look at your salary when you apply for a home loan. They look at the whole package. They look at what you earn, what you spend, which deductions are being made, and most of all, your credit report. They look at your monthly expenditure such as home loans, retail store accounts, medical aid expenses, travel expenses and insurance.
It is very important to be aware of what’s in your credit report. Make the right choices and don’t buy things on credit that you could live without or save for. Limit your number of credit cards and try to pay the balances in full every month. Not only will you save on the interest that you pay, but also you will have a better credit report. Accounts at retail stores should be mostly for emergencies. Don’t go on a shopping spree that will leave you with high instalments and a smaller amount of your salary to live on.
Set priorities, goals and limits. It is important to separate what you want from what you need. More often than not, the ‘I-want’ wins over the ‘I-need’ and this is where so many South Africans close their eyes and dive into the pool of debt. Debt that is very hard to get out of. If you don’t really need a new laptop, designer shoes or whole new wardrobe, don’t buy it. Especially not on credit.
Give yourself a spending money limit. You should draw up a budget and decide how much you can afford to spend on yourself each month. Don’t overspend and save the rest. Don’t dig into your savings – you need to build up a positive credit report. If possible, close unnecessary accounts. Some should be kept open in order to get a credit rating. If you have no accounts, banks will not have anything to refer to. Keep your accounts in shape – always pay on time and if you cannot pay more than the monthly instalment, at least pay the whole instalment every month.
It is important that you keep your credit report in good shape and minimise your expenses if you are thinking about applying for a home loan in the future. If these are not in place, rather postpone buying a home and get your credit report in order before applying for a home loan. Not only will a good credit report increase your chances of a home loan being approved, it will help you save money and spend wisely.
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