Want a home loan? Work on your credit rating

There's more to a successful home loan application than the "right" month-end salary, and the earlier a borrower starts to build a good credit record, the better.

"While an applicant's take-home pay is very important in the lender's decision whether to grant a home loan, it is a good credit rating that is really critical, especially in the light of the current credit crunch," says Tjaart van der Walt, CEO of the RealNet estate agency group.

"At the moment lenders are looking hard for stability and reliability in a borrower, and a good record in paying off credit card debt, hire purchase obligations and any other form of debt goes a long way towards ensuring a successful home loan application. And if the buyer can show that they have already successfully managed one or more home loans, the process is easier."

The first thing borrowers should remember is that they can't fool the lenders. A credit record in this country is easily traced by the financial institutions, which have access to information from a multitude of sources. However, even if there has been a glitch in the past, it is not necessarily the end of home loan hopes.

Van der Walt's advice to borrowers is to ensure that their credit record for at least the past two years is good before they apply for a home loan. Lenders will also look for job stability in that period, and if the borrower runs his own business they will want verifiable proof of reliable income.

He also says that if there has been a payment problem in the past, potential buyers should be honest about it and be prepared to provide proof of the reason for instalments being missed or delayed, such as retrenchment or medical bills after a long illness.

"Generally, creating a good credit record means paying bills regularly and on time, ensuring that other lines of credit such as an overdraft facility and credit cards are not always stretched to their limits, and building up savings for a deposit on the home you want to buy.

"Even if you do not commit all of your savings to a deposit, the lender will be impressed if you can show that you have an emergency reserve."

And finally, he warns: "Don't run joint accounts. One person's credit problems can spoil another's credit rating for years, even if they occurred long before the joint account was created."

Issued by RealNet

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