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What is a good credit score to buy a house?

A good credit score boosts your chances of home loan approval, but what is a good credit score, and how can you improve yours if it's too low?

What is a Good Credit Score

Article summary

  • Your credit score is a big number above your head that tells a potential lender how much of a risk you are. It will be a three-digit number between 300 and 850.
  • Your credit score is determined by how well you manage your debt, how many accounts you have and how long you’ve had them for, among others. You can request your free credit score annually from a credit bureau, or by using ooba Home Loans’ Bond Indicator tool.
  • A high credit score will smooth the way to a successful home loan application.

Very. High. Risk. These are just some of the four-letter words you don’t want to see when you consider your credit score before applying for a home loan.

Your credit score is a three-digit number (ranging from 300 to 850) 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.

What is a good credit score?

Anything above 670 would be considered a “good” score.

Below 600 would be considered high risk. You’ll want to look at ways to clear your credit record.

Credit scores in more detail:

  • 781 to 850. Excellent
  • 661 to 780. Good
  • 601 to 660. Fair
  • 500 to 600. 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.

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 repayments 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 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 also 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 home loan. 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 have been successful in securing home loan financing for two in every three applications that are initially turned down by their bank.

ooba Home Loans also offers a range of tools that can make the home buying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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