Buying a house? Your credit rating is the most important asset

Unless you have a clean record of servicing debt, your bank will be unlikely to grant you a home loan. But since a credit record isn't something that most people think about unless they are in financial trouble, how do you go about making sure yours is in good condition?

"When you start planning to buy a house, the most important thing to do is get your financial affairs in order early," says Kay Geldenhuys, manager of property finance processing at ooba, South Africa's bond originator. "A good credit rating can't be achieved overnight, so if you are considering buying a house in the next few years, you should do what you can to score well right away."

The golden rule

The golden rule of credit is that you can't get it until you've had it. This isn't as impossible as it sounds - it simply means that you should start small to prove that you're responsible so that your bank will look favourably on your home loan application when the time comes. "While it may seem financially responsible not to get into debt, the banks have no other way of assessing what you will do with credit."

Store credit, cell phone accounts and bank loans - especially for other assets like cars - are a good way to start. A credit card also has a strong influence on your credit score, so try to include at least one credit card in the mix.

Then be absolutely diligent about making repayments. Paying back your credit card balance has a significant impact on your score, but missing a payment or not paying the minimum instalment is also more detrimental. "Obviously, it's not just having the credit, but how you deal with it that the banks are assessing," explains Geldenhuys.

Any unpaid credit card debt or store credit will reflect on your credit record, but another thing that can have a serious negative impact is an unpaid account like a doctor's bill resulting in a dreaded blacklisting. The National Credit Act has issued legal steps that credit providers have to follow before blacklisting a person. If these have not been followed, the blacklisting can be legally challenged and removed.

Your free credit report

"Every South African is entitled to check their credit record for free once a year," says Geldenhuys. "This can be done through any of the 11 registered credit bureaux in South Africa, but can be a tedious process. It is a good idea to use the services of a professional credit rehabilitation provider to get your report and also to assist you with any action you need to take to clear your credit record and improve your rating."

Paying a bad debt is not enough to rehabilitate your credit rating, so a credit rehabilitation provider like ooba's partner, Lucid Clear Credit, will take the legal steps to ensure that your report is updated immediately. "This is particularly relevant if time is of the essence like when you are putting an offer in on a house," says Geldenhuys.

According to Adv Randolph Samuel, director at Lucid Clear Credit, most people are shocked the first time their credit report is explained to them. "The credit report is your financial report card," he says. "It reflects your financial health - what you spend your income on, whether you can afford the debt you have and whether any lender has taken legal action against you for non-payment. Based on your creditworthiness, a lender can then decide whether to approve your application for a home loan."

While there are steps that can be taken to rehabilitate a bad credit record, the best way to be financially healthy is to pay your bills on time and in full. "It's not complicated," says Geldenhuys. "To ensure a good credit rating, don't get into more debt than you can afford, and then make sure you pay it back - it's good practice for repaying a home loan."