South Africans continue to feel the effects of the Covid-19 lockdown on their wallets, and on their credit scores. However, home loans are at an all-time high and having a good credit score puts potential homeowners in a strong position to own their dream home.
The latest statistics released by Ooba Home Loans reveal that 15% of home loan applicants are rejected due to poor credit scores and a lack of affordability.
Rhys Dyer, CEO of Ooba Home Loans said that this announcement has a strong correlation to the debt levels recently announced in TransUnion’s Consumer Credit Index for quarter 4 of 2020.
“While many consumers are enjoying the advantages of a lowered interest rate, including lower monthly bond repayments, some are still struggling to repay their debts and keep their credit scores in check.”
The latest data by TransUnion is a concerning indication of the country’s affordability levels. “Out of 54 million consumer accounts measured, the report indicated rising defaults on credit repayments (an increase of 5% for the quarter) and weak cash flow”,
Added to this, a report by the National Credit Regulator has identified that 40% of credit-active South Africans are facing an impaired credit record – meaning that there has been a significant increase in an individual’s credit ‘risk.’
The Good News
There are indications that the economy is on the road to recovery. Although many experts anticipated a spike in new defaults at the end of 2020 once payment holidays ended, TransUnion revealed that the total consumer accounts in arrears in Q4 fell to 7%, below their peak in Q2.
“This result indicates the positive impact of the lower interest rates, recovering employment rates and return to full income for many workers at the end of last year, as well as cautious budgeting and reduced unnecessary spending by many households,” said Dyer.
“Add to this the uptick in first-time buyers and a surge in home loan approvals, which is a clear indication of many South Africans choosing to improve their financial position and their credit score during this time.”
Keeping your Credit Score in Check
To qualify for a bond, a credit score rating of 600 or more is required. There are many easy to use, free online tools available to check your credit score, such as ooba’s online bond indicator.
“Here, you can check your affordability levels and your credit score to establish what you can realistically afford. Remember, the better your credit score, the better your chances of securing a low interest rate on your home loan.”
Consumers should check their credit score every three to six months and adjust their finances accordingly.
Tips to Improve Your Credit Score
If you’re struggling with a poor credit score, or monthly repayment issues brought on by the pandemic, there are some options available, said Dyer.
- Re-prioritise spending. Try to curb spending on your credit card and using money you aren’t able to repay. “Your lifestyle should match your expenses, for instance, you shouldn’t be driving a sports car if you aren’t earning enough to comfortably afford this. Scale back where needed.”
- Pay the full amount, on time. Ensure your minimum debt instalments are paid in full, or over the minimum amount if possible, and on time. “Failing to do so can damage your credit score.”
- Avoid multiple credit cards. Having multiple credit cards and loans, as well as applying frequently for new card facilities can weaken your score.
- The “right” amount of debt. Having manageable, healthy debt is beneficial, and a credit repayment history is in your favour. “However, too much debt, such as maxed out credit facilities, will negatively impact your score.”
- Avoid debt reviews. Applying for insolvency or debt review will negatively affect your credit score, so try to avoid these options unless there is no other alternative.
“South Africans are facing a trying time, and it’s never been more important to maintain or rehabilitate your credit score. I have faith in the ability of South African’s to overcome the hard economic knocks of Covid-19 and to take steps to empower themselves financially. Not doing so will have a knock-on effect in the years to come,” said Dyer.