What is a credit score? Here’s what you need to know
You need to know what a credit score is before applying for a home loan. So what is a credit score? We provide the information you need.
Article summary
- Your credit score is the most significant factor the bank takes into account when determining whether to grant you a loan.
- A credit score is a three-digit number that is calculated based on your financial history.
- A credit score of at least 610+ is required to have a chance of home loan approval.
What is a credit score? It’s a three-digit number that tells the bank how much of a risk you are. The score is calculated based on your financial history and is the most significant factor the bank will take into account whenever you apply for a loan.
Here we discuss:
- How you can find out your credit score.
- How is your credit score calculated?
- What is a good credit score?
- How to improve your credit score.
1. How you can find out your credit score
You can find out your credit score by using our free, online tool, the Bond Indicator.
Alternatively, you can contact ooba Home Loans and get your credit score and affordability verified by one of our home loan consultants.
2. How is your credit score calculated?
A registered credit bureau will compile a record of your personal credit transactions on behalf of the bank, and calculate your credit score based on the following:
- 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.
3. What is a good credit score?
You need a credit score of at least 610 for the bank to even consider your home loan application, while anything above 650 is considered a decent credit score.
Here’s a more detailed breakdown:
- 670+ = excellent.
- 650 – 669 = good.
- 634 – 649 = average.
- 610 – 633 = below average.
- Below 610 = very poor.
4. How to improve your credit score
If you fear your score is too low to secure a loan, don’t give up hope. There are steps you can take to improve your credit score within a short period of time:
- Pay outstanding bills.
- Pay all your incoming bills on time.
- Pay more than just the minimum instalment on your bills.
- Pay off credit card debt.
- Avoid spending up to your credit limit on your credit card and store accounts.
- Pay off store credit, cell phone accounts and bank loans – especially for other assets, such as a car.
- Refrain from opening new credit accounts where possible.
- Check your credit report for inaccuracies and take it up with whichever credit bureau performed the calculation.
- Close your accounts when you’ve paid the balance owing.
How long will it take to improve your credit score?
According to businesstech.co.za, improvements usually start showing up on the credit record after around three months, but it’s recommended to wait about six months before reapplying.
Securing a home loan
Your credit score is the most significant factor when applying for a home loan. The bank will assess your credit score when determining whether to approve your application. If they approve it, your credit score will affect the favourability of your interest rates.
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