Stacking your financial odds

2014-02-24 08:00

Your credit record is used by banks and other credit providers to assess your capacity to take on further debt. A risk-averse reader queries the necessity of credit, and another wants to know how to access his credit profile

Renting vs buying

Pabi writes:

I am paying R3?500 a month in rent, including water and electricity, but I feel this is a waste and would like to buy property that would require a bond with a similar monthly payment.

I have found several options in the south of Joburg. I am sure with water and electricity I would end up paying R4?500. Would this be a good move?

Geraldine Macpherson, a legal marketing specialist at Liberty, replies:

Buying your own home essentially means you are acquiring an asset in your own name and if that asset grows in value, you benefit from that appreciation.

But in your current scenario, you are paying for the benefit of living on the premises and any capital appreciation happens in the name of your landlord. While buying your own property may cost you a little more each month, you will benefit in the long run.

Another benefit of buying your own house is building up a credit record of your own.

If you need to apply for finance for any other purposes, that finance company can see that you service your bond on time without defaulting, and this will stand you in good stead.

In addition, buying and paying off your own home gives you permanency of occupancy – the peace of mind, once it is paid off, that you will always have a roof over your head. But there are a few things to remember, such as:

»?Make sure you have done a proper budgeting exercise and you can afford the bond instalments as well as the water, electricity, and rates and taxes bills that will come your way;

»?Bear in mind that as the homeowner, you are responsible for maintenance. Ensure you have savings readily available for any emergencies that require you to spend money on your house;

»?By paying more on your bond than is required, even if only a little, you can dramatically reduce the amount you pay over the term, and even reduce the term itself; and

»?If you have an access bond, don’t treat it as your personal pot of gold to access as and when you please. Try not to use the access facility unless you absolutely need to.

City Press replies:

The first thing to find out is what kind of house would you be able to buy with a bond repayment of R3?500 a month. Bond

originator has a great calculator on its site that helps you work out costs. Based on Ooba’s calculations, you could buy a property for R400?000.

It is an excellent point you make that you estimate an additional R1?000 for electricity, water, rates and levies (if in a flat or complex). Home ownership is not just about paying the mortgage. Ideally, you should save 10% towards a deposit – your interest rate will also be affected by whether or not you have put down a deposit. You are still young, so a good strategy would be to maximise your savings now and work towards a deposit. If you save R1?500 a month, you should have your deposit in just more than two years.

Building up a credit record

Brendan writes:

I have been having problems acquiring a cellphone contract from a leading service provider.?They have told me my lack of a credit record is the problem.?Their advice was to “go and open some store accounts”.

I am fundamentally opposed to buying on credit (I read The Total Money Makeover, it was eye opening) and I am a very conservative consumer. I have only been working for one year since graduating from university.

I would like to buy my own home in the next five to 10 years, but I do not want to have a nonexistent or bad credit record holding me back from obtaining finance if I need it.

Is there a way for me to stick to my principles and still build a good credit

record in the eyes of the banks, or?should I be aiming to pay for a home with cash?

City Press replies:

Cellphone companies fall outside the National Credit Act and often insist on a credit record before you can enter into a contract with them. The banks, on the other hand, are governed by the act and are not allowed to use the lack of credit as a reason to turn you down.

What the banks are doing now is looking at how you conduct your bank account – debit orders, gym contracts, etc.

So, having a debit order into an investment account would be very positive. If they can see you are managing your finances based on the movement of money in your bank account and they also have some idea of your cash flow, they will have enough information to grant you credit.

Hannelie Crous, the head of credit at First National Bank retail, replies:

Banks would typically use a combination of their own internal customer data as well as bureau data to assess a customer for credit.

Banks are able to do this because customers deposit their salaries into their bank accounts and we are then able to verify the account holder is conducting his or her account in a responsible manner.

Provided this is the case, it would not be necessary for the customer to have a record at the credit bureaus.

Anton de Wet, Nedbank’s managing executive of client engagement, replies:

In terms of being financially fit and prudent, it is not a good idea to incur debt you don’t need.

A bank credit record is built up in a number of ways based on your payment history with regard to transactional products and, crucially, your affordability.

The level and type of lending product you want to use are also

key considerations. Some credit providers, such as cellphone companies, may rely more on pure credit bureau data consisting of a credit bureau score, which may be insufficient if Brendan has no credit history or has what is

commonly referred to as a “thin file”.

Brendan can build a credit record and limit the cost of such credit by opening an interest-free store card or an entry-level credit card. But he must carefully monitor his spending and pay the full amount owing every month to avoid finance charges.

Affordability is a key consideration in any lending product application and in the absence of a credit record, banks would consider Brendan for entry-le­vel products, which are generally lower-value and short-term products, ­enabling him to build up a record.

Banks would also look at the consistency, type and level of income. It would be very difficult to obtain funding for major items such as a vehicle or a home without some type of credit or banking history.

Over time, a transactional account will give a fair indication of your cash flow and payment profile.

It provides the bank with a behavioural score that is used when you apply for credit.

Access your credit report

Sinethemba writes:

How do I go about finding out about the information credit bureaus have on me? Can I access my credit report?

City Press replies:

Under the National Credit Act, you are entitled to one free credit report from a credit bureau each year. If you request further credit reports in the same year from the same bureau, you will have to pay R20 per report. There are several credit bureaus:

»?TransUnion: 0861?482?482

» Experian SA: 0861?1058?665

»?Compuscan IT (microlending): 0861?514?131

»?XDS: 011?645?9100

»?Consumer Profile Bureau: 010?590?9505

»?LexisNexis Risk Management: 011?245?6500

»?Tenant Profile Network: 086?187?6000

»?CreditWatch: 011?483?0086

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