Tenant credit scores

If you are considering buying a property and need to apply for a home loan, you probably know that a good credit score is essential for getting your application approved.

Credit scores are based primarily on your history of paying your bills in full and on time. However, you may not be aware that your rental payment history is not automatically reported to the credit bureaus that compile credit scores.

Rent is a major monthly expense, so if that history is omitted on your credit report, it could result in your application for a home loan being turned down when you do decide to buy. Banks are likely to view you as more creditworthy if your credit report shows that you are diligently paying your rent on time and in full.

Application

As part of the home loan application process, the bank or bond originator will ask for your credit history and credit score from one or more of the major credit bureaus in SA - Experian, TransUnion and XDS. Credit bureaus can include a record of your rental payments in their reports, provided they have the necessary information.

Professional rental agencies generally have systems in place to automatically report rental payments to a specialist property credit bureau such as PayProp or TPN, and some private landlords may participate in an official rental reporting programme. The specialist property credit bureaus then share information with the general credit bureaus, which the banks and other credit providers can access.

If your lease is for a defined period, your regular rental payments will be recorded by the credit bureaus, much like repayments on a motor vehicle loan or other fixed-period loans. However, if you have a month-to-month lease, the payments will be viewed like credit card or store card account instalments.

Savings

Having your rental payments included in your credit score will significantly improve your chances of getting your home loan application approved.

You are also more likely to be offered a preferential interest rate that could save you thousands of rands over the lifetime of your home loan. Keep in mind that even a small percentage in interest translates into potential savings of thousands of rands each year off your instalments. With a preferential interest rate, you could easily save more than R50 000 worth of interest on a R1 million loan over 20 years.

Courtesy of PrivateProperty