Although each bank has its own criteria, a higher credit score may improve the success of your home loan application in South Africa.
Overview
Your credit score is used by financial institutions like banks to determine whether your home loan application will be successful, or not.
Credit scores can be divided into different ranges with different ratings that will influence the success of your credit applications accordingly, because financial institutions want to ensure that extending your credit will not be too big of a risk.
What is a credit score?
A credit score is a score reflecting your past credit behaviour that banks consider when they determine your creditworthiness. Your credit score is usually calculated by a credit bureau. This credit bureau will compare your credit history and payment information against a chart or criteria to determine which value they should assign to your creditworthiness.
This credit score will be reflected on your credit record, which a financial institution like a bank will use to assess your application when you apply for a home loan in South Africa.
What is a good credit score to buy a house in South Africa?
Lenders, like banks, do not want to extend more credit to individuals who are already over-indebted, and they also do not want to risk extending you credit if you are not likely to pay back your loan.
Therefore, these institutions make use of your credit score and other indicators to judge whether you would be a viable candidate for them to extend credit to. Since your credit score is determined by your previous credit behaviour, it is used by these financial institutions to determine what your credit behaviour will be, and whether you qualify for more credit.
A low credit score may indicate a history of non-payment, late payment, or even judgements against you. Whereas a higher credit score will indicate that you are a low-risk candidate, who is likely to make timely payments and pay back your loan in its entirety.
Your exact credit score will determine the success of your home loan application and may even determine your interest rates and payment period. Different ranges of credit scores, determined by various factors, will have various effects on how a financial institution will treat your loan application.
Ranges for credit scores
Generally, a credit score over 600 will be enough for a financial institution to (at least) consider your application for a home loan. If your credit score is above 670, your application for a home loan will be approved and you may even qualify for special interest rates and benefits.
The ranges for credit scores are not immovable set standards, but they will give you an idea of where your current credit score might place you, for instance:
| Credit score range | Rating |
| 767 to 999 | Excellent |
| 681 to 766 | Good |
| 614 to 680 | Fair |
| 583 to 613 | Poor |
| Below 583 | Very Poor |
What does the credit score range mean?
The rating of your credit score will indicate to financial institutions how big of a risk it will be to extend credit to you, or, in other words, how likely it is that you will stick to the terms and conditions of your home loan and make your payments timeously. The meanings of each rating are as follows:
| Rating | Meaning |
| Excellent | Extremely low risk |
| Good | Low risk |
| Fair | Medium level of risk |
| Poor | Potential high risk |
| Very Poor | Extremely high risk |
The higher your credit score is, the lower the risk is for a financial institution to extend you credit, and the more likely it is that your application will be accepted and that you will qualify for premium interest rates and benefits for your home loan.
What determines your credit score?
In order to know how to improve your credit score or what is affecting it, it is helpful to understand which factors credit bureaus look at to determine your credit score. Some of these include:
- Your repayment history
- Your current employment and history
- Other debts you have
- How long your accounts have been open
- Any judgements against you
- Credit you have applied for in the past
- Other sources of income
Final thoughts
A credit score is one of the main factors that banks consider with your home loan application. This credit score is determined by many different factors of your credit history, but in the end, will determine how successful your loan application is.
A higher credit score will lead to a potentially more successful loan application with premium interest rates, because you will be considered a lower risk candidate by the financial institution with which you apply.
