What is considered a good credit score in South Africa?

Article summary

• Your credit score is a big three-digit number above your head that tells a potential lender how much of a risk you are.
• A credit score should be at least higher than 610. A credit score above 800 is considered excellent.
• A high credit score will smooth the way to a successful home loan application.
• Your credit score is determined by how well you manage your debt, how many accounts you have and how long you’ve had them, among others. You can request your free credit score annually from a credit bureau, or by using ooba Home Loans’ Bond Indicator tool.

Your credit score is a three-digit number that tells the bank how much of a risk you are. A good credit score will give you the best chance of getting your home loan approved.

So what credit score should you be aiming for?

What is a good credit score?

You want your credit score to at least be 610. This is the cut-off point for having a credit score that stands you in good stead when applying for loans.

Below 610 would be considered high risk. You’ll want to look at ways to clear your credit record if your credit score falls in this region.

Credit scores in more detail:

• 781 to 850. Excellent.
• 661 to 780. Good.
• 610 to 660. Fair.
• 500 to 610. Poor.
• 300 to 499. Very poor.

How to find out your credit score

• You can use ooba Home Loans’ Bond Indicator to access your credit score. This is a 100% secure, online tool that is available free of charge and without any obligations.
• Based on the information you provide, the tool will give you an indication of your credit rating, and how much you can realistically afford.
• The Bond Indicator tool will issue you with a Bond Indicator Certificate that will enable you to house hunt with confidence.

Purchasing a home: Why it’s important to have a good credit score

• As mentioned, a good credit score is essential to getting your home loan application approved.
• In addition to that, it grants you a stronger bargaining position with the bank and improves your chances of getting a favourable interest rate on your home loan, saving you money in the long term.

How is a credit score calculated?

Credit bureaus will compile a record of your personal credit transactions and rate your debt repayment performance according to a credit score chart that indicates how well you manage your debt.

Credit bureaus look at the following factors when calculating your credit record:

• Your debt repayment history.
• Amounts owed.
• Types of credit applied for and how often.
• How long your accounts have been open.
• How much of your available credit you’re using.
• Whether there is any history of you not honouring a debt obligation that resulted in bankruptcy or a judgment against you.

The credit bureaus won’t only be looking at your repayment history. They’ll be able to access your employment history and income as well and calculate your credit score according to a complex formula.

How to improve your credit score

• Make sure you don’t apply for more than one loan at a time because that will signal to lenders that your financial status has deteriorated.
• Always pay your accounts in full and on time. Try and pay more than just the minimum instalment.
• Keep servicing your debt, only dipping into available credit when you really need to and reduce your credit limits where possible.
• Avoid spending up to your credit limit.
• As much as we don’t like to be in debt, having accounts is a must when it comes to applying for a home loan. Without them, the credit bureaus won’t be able to assess the risk associated with your application.
• It’s a good idea to get your credit card debt down first and keep the balances low because credit cards often carry the highest interest rates.
• Avoid owing more than a third of your gross income on debt.
• Close accounts when you’ve paid the balance owing. This will count in your favour as it will indicate that you are a lower risk.
• Revolving credit is a bad idea and usually carries high-interest rates.
• Remember that as much as you need to manage your own accounts, those of your spouse will also need to be in good shape if you’re applying for a joint bond. The banks will want to know about their credit history too.
• If you’re unable to pay the amounts due on your accounts in full, make an arrangement with the creditors to pay lower instalments over an extended period of time.

Don’t lose hope if you do have an application rejected by your bank

South Africa’s leading home loan comparison service, ooba Home Loans, can apply to multiple banks on your behalf and has been successful in securing home loan financing for two in every three applications that are initially turned down by their bank.