Bad credit can be a big obstacle for many potential home buyers. Lenders have tightened their lending criteria significantly in recent years. In South Africa, most banks charge first time home buyers higher interest rates. The reason behind this is that first-time home buyers pose a greater lending risk.

SA Home Loans is a company that offers transparent and competitive rates. The company doesn’t require applicants to have a lengthy credit record in order to qualify. While the institution provides help for those with poor credit, it also advises first-time home buyers to become “responsibly credit active sooner rather than later”.

As a first-time home buyer with bad credit you will improve your chances of qualifying for a home loan by taking steps to improve your credit score.

What is considered bad credit?

Being in arrears on a few accounts will show you as having a poor payment profile with the banks.

If you have judgements or listings you will first need to rehabilitate yourself.  This may include the removal of paid up defaults, checking your credit report and budget management. Bad credit means that your individual credit rating is poor, due to missed payments or incurring too much debt and not being able to afford to make repayments.

Banks are guided by the National Credit Act when it comes to granting loans, so they will not grant you a home loan if you have a bad credit record.

The credit decision will depend on the strength of the applicant’s information.

It’s also important to keep in mind that the decisions will vary from bank to bank.

When applying for a home loan, it’s always a good idea to get prequalified. A credit check will be run against your name and your overall affordability will be calculated.