Repairing a bad credit score.

After over two years of high interest rates, it is understandable that some might be dealing with a tarnished credit score. Thankfully, there are ways to repair your credit score and to improve your chances of being approved for home finance.

"A good credit score is important as it determines whether you will be approved for any kind of financing and also determines what interest rate you are offered. This is particularly important for those who are hoping to qualify for a home loan," says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

Goslett's first piece of advice is to regularly monitor your credit report to stay informed about your credit status. "This helps you catch any issues early and track your progress in improving your credit. Some banking apps allow you to check your credit score for free," he notes.

If you discover that you have a low credit score, Goslett recommends that you start building a positive credit history by paying all your bills on time and in full. "Any missed, late, or partial payment will count against you, so you will need to find a way to keep up with every repayment if you want to improve your credit score."

Having too much debt against your name will also affect your credit score. "Focus on paying off the high-interest debts first, but ensure you are making minimum payments on all accounts to avoid further negative marks on your credit report," says Goslett.

If you are struggling to keep up with all your repayments, Goslett suggests that you contact your creditors to see if any are willing to negotiate repayment terms. Whatever is agreed to, ensure that it is documented in writing.

For those who are unable to make any progress on their own, Goslett recommends speaking to a debt counsellor who can help you manage and repay your debt. They can negotiate with creditors on your behalf and create a manageable repayment plan.

"Most economists predict that we will see our first interest rate cut of around 0.25% in September or November this year. For those who were planning to enter the property market when interest rates dropped, now is the time to start cleaning up your credit record to make sure you get a favourable rate on a home loan," says Goslett.

According to Cobus Odendaal, CEO of Lew Geffen Sotheby's International Realty in Johannesburg and Randburg, who shared in March 2023, that dreams are often dashed by the fact that, although most people appreciate the importance of maintaining a good credit rating, not everyone is aware of all the ways in which they can bolster - and hamper - their score.

"It's not uncommon for a bond applicant to be genuinely surprised when a credit check throws up negative results and their application for finance is declined.

"Many people don't realise that even seemingly minor things can count against them, including late payments and unresolved disputes with companies, even if they are in the right.

"So, all too often we see financially stable and generally credit-worthy buyers having their property dreams scuppered by long-forgotten debts, often innocently overlooked because of circumstances like moving house.

"And, although they may have originally been small amounts, legal fees and penalties can escalate the amount owing and sometimes there is even a judgement against them."

Odendaal believes that knowledge is key when it comes to managing one's credit.

"The more you understand about the factors that affect your credit score, the easier it will be to maintain a good rating, especially if you are planning to apply for substantial finance like a mortgage."

Important criteria

Although the two most critical requirements are a good credit score with a track record of repaying contractual debt responsibly and being able to afford the monthly bond instalments, banks also take several other factors into consideration.

"For instance, a factor which one would expect to count in an applicant's favour is having high but unused credit available on retail accounts and credit cards, but the opposite is true," says Odendaal.

"Banks will automatically include the potential instalments on these unused credit facilities in their affordability calculation, with the rationale being that the applicant could at any stage max out his/her credit facilities.

"So, before you apply for home finance, you should either reduce their credit limit amounts or else close unused accounts so that your affordability isn't prejudiced."

He also advises that, in the time leading up to their bond application, people limit their any other finance applications to only those that are absolutely necessary as too many credit inquiries, whether they be for a credit card or a loan, can negatively impact on your score.

"This is one of the key benefits of using a bond originator when shopping around for the best rate as, being service providers rather than credit providers, they therefore leave no footprint."

Affordability vs income

Odendaal adds that there is a difference between qualifying for credit with regard to gross income and affordability, both of which the banks the banks take into consideration.

"As a rule of thumb, the larger the margin between gross income and expenses, the better the rate applicants are likely to be offered so I always also advise people not to go buying a brand-new car just before they apply for a mortgage." 

A good credit score is equally important in the rental sector as it can be very difficult finding a home to rent if is one is regarded as high risk.

"Although a tenant's credit score is not necessarily an accurate indicator of how reliably they will pay their rent, especially in these tough economic times, it's generally the only way that agents have of gauging potential payment behaviour."

The best way to establish a good credit score is consistently over time and Odendaal advises that those with a scant record should start with small accounts like store credit and cell phone accounts and try to include a credit card in the mix. Keep your debt low and always pay on time, paying more than the minimum instalment when possible.

"Although the Credit Amnesty Bill implemented on 1 April 2014 stipulates that credit bureaux must now automatically remove paid-up judgments and paid-up adverse information listings, banks still have access to payment profile information which displays payment histories.

"So, if you have negative information on your credit report, there is unfortunately no quick fix as your credit score is influenced by your payment profile behaviour over the previous 24 months, so all you can do is pay your bills on time and be patient."