Home Loans And Credit Reports

Are you applying for a home loan? Do you know your credit status?

When applying for a home loan, your credit report will play a very important part in the lender's decision to grant the home loan, or to decline your home loan application.

What is a credit report?

Your credit report is very much like your financial report card. If you are dedicated, on time and consistent in repaying your debts when borrowing money from financial institutions or retailers, you will score an "A" on your credit report card. But if you make a habit of neglecting your creditors, by paying your debts late, or by not repaying your debts at all, your credit report card will end up with a bad rating, or a "big red F", stamped all over it.

Lenders look at your credit report card to decide how big a risk they would be taking, by lending you money. And lenders will be much more eager to lend money to an "A student" than an "F student", when it comes to your credit report card. So, lenders will only give you the credit you deserve, and nothing more.

Where do credit reports come from?

Creditors can voluntarily subscribe to either one of South Africa's two major consumer credit bureaus: Experian, or TransUnion ITC. Creditors can receive credit reports from the credit bureaus, and report their clients' credit information to the bureaus.

The Experian and TransUnion ITC credit bureaus work independently, and stuff that appear on your Experian credit report may not appear on your TransUnion ITC credit report. So, if you look into your own credit report, be sure to get a credit report from a source that consolidates both bureaus' credit records.

What does a credit report look like?

Your credit report has four key sections:

Identifying Information - This includes your full names, ID number, etc. There may be spelling errors in your name, or variants of your true ID number here. People enter these details, and as we know, people make mistakes. So, it might be good that you provide the credit bureaus with the correct version of your details. But don't be too concerned about errors here. It is the stuff about your credit history that really counts.
Public records - Hopefully, if you managed your credit well, this section will be blank. But if you defaulted on a debt, had a creditor judgement against you, or if you suffered insolvency, these matters of public record will be reflected here. And even if you have an entry here, the record may only be listed for five (5) years, before it has to be removed from your credit record, in the case of a creditor judgement, or insolvency. A default listing must be removed from your credit record after three (3) years. But if you repay these debts in full, the creditor may (on your request) rescind such an entry in your credit record. Be smart with settlement of default debts, though. Consult a specialist attorney, if you are dealing with creditor defaults, because defaults should be settled on condition that the listing is removed from your credit record.
Payment Profile Information - Your credit accounts are listed in this section of your credit report. This section might get a little confusing, because if you move, a creditor may assign a new number when your account gets transferred to a new location. Each record of your credit accounts includes the creditor's name, the account number, the date the account was opened, the type of credit (instalment credit such as a home loan or car loan, revolving credit such as a retail credit card, etc), whether the account is linked with someone else or not, the maximum loan amount, your fixed monthly repayments, how much is still outstanding, how well you have been paying the account, how many months your account is in arrears (if at all), and the status of the account (whether it is open, inactive, closed, paid, etc.).
Enquiries - The enquiries section of your credit report contains a list of all the people and institutions that have requested your credit report. It is important to try and keep this list of credit enquiries to a minimum. Too many lenders enquiring about your credit history may give other lenders the impression that you are "shopping" for credit. Exactly why this is a bad thing, I don't understand, but the people in the know assures us that "credit surfing", by moving balances from account to account, to take advantage of promotional low interest rates is a good way to earn yourself a long list of credit enquiries, which might make lenders uneasy about approving your loan. Always conduct your credit affairs with a medium to long-term view. This will keep your enquiries list short and sweet, and improve the potential lender's confidence in your credit integrity.