24 Sep 2011
It’s never too early to start building a healthy credit record.
That’s the advice of Young Carr, CEO of the Aida property group, who says: “Most homebuyers need home loans, but what many don’t appreciate is that the process of obtaining this credit actually needs to begin years in advance of the decision to buy property.”
The first thing banks will do on receiving a home loan application, he says, is to check the prospective borrower’s credit history, which means that good management of monthly bills, including any clothing or furniture accounts and credit card payments, is critical even for young people who have no immediate plans to buy a home.
It is also important for future buyers to open a savings or cheque account in their own name, to keep it balanced and not to overrun credit limits. “And a history of full payment on time for a major purchase, say a car, will be a great recommendation for any mortgage applicant,” he says.
“Getting an early start on building a good credit record in this way also means that if there are any minor misjudgments early in a working career, they will most probably be outweighed by a longer period of good credit management when the time does come to buy a home.”
Carr says it is particularly important for those who are working on their credit records to pay attention to the “due dates” on their bills. “For credit reporting purposes, overdue accounts are usually anything unpaid for longer than 30 days. So if the due date is the 1stof the month, the debtor must make sure that his payment will actually reach the creditor on or before the 1st – and inside the 30-day window.”
It is also important for potential borrowers to pay attention to the implications of the National Credit Act, which provides that lenders must ensure, before they grant any new credit, that borrowers will not be committing too much of their income to debt repayment.
“They do this by compiling a complete debt profile including all other repayments the consumer has to make as well as regular monthly expenditure on such items as transport, food and school fees before they can approve a home loan.
However, says Carr, this is not the only good reason to keep the total of your monthly debt repayment obligations as low as possible. “The other is that doing so will also give you plenty of leeway to cope with any future interest rate increases without financial hardship, whether you are a homeowner by then or not.”