Make sure your credit report includes your rental payments
Most home buyers are aware that a good credit score is a vital part of being approved for a home loan - and that this score is based mostly on their history of paying their bills in full and on time.
What many of those who are currently still tenants don't know, however, is that their rental payment history is not automatically reported to the credit bureaux that compile their credit scores. "And with rent being a major monthly expense, the omission of that history could well cost them their dream home one day," says Rudi Botha, CEO of BetterBond*, SA's leading bond originator.
"Recent research by one of the biggest credit bureaus found that only about 50% of tenants' rental histories were being reported - and that the credit scores of 80% of tenants improved when rental payment records were included in the calculations," he notes.
"This is why it is important to rent only through a professional agency with systems in place to automatically report rental payments to a specialist credit bureau such as PayProp or TPN - or from a private landlord who participates in an official rental reporting programme."
Botha says credit histories and scores are generally obtained from one or more of the four major credit bureaus in SA - Experian, TransUnion, Compuscan and XDS - and that they can also incorporate a record of rental payments into their reports, provided that they can obtain the necessary information. For example, TPN shares rental repayment records with Experian.
"If the length of your lease is defined, your regular rental payments will be recorded by the credit burea in the same way as the repayments on a car loan or other fixed-period debts; and if the lease is month-to-month, your payments will be treated like credit card or other variable account instalments. Either way, you are likely to be seen as more creditworthy if the record shows that you are diligent about paying your rent on time and in full."
And that, he says, will significantly improve your chance of being approved for a home loan, especially if you apply through a reputable bond originator like BetterBond, which is currently able to obtain approval for more than 75% of the applications it submits.
"What is more, it will make it much more likely that you will be offered a preferential interest rate that could save you many thousands of rands over the lifetime of your home loan. We find that the current average variation between the best and worst rate offered on an individual application is 0,5%, and on the typical first-time buyer's loan of R760 000, for example, even that small percentage translates into potential savings of R3000 a year off your home loan instalments and more than R60 000 worth of interest over the lifetime of a 20-year loan."