Up your credit score and become a homeowner

Did you know that more than 40% of the income bearing people in South Africa have a problem with their credit scoring and that the average South African spends 75% of his/her net salary on debt?

When you make a loan or buy on credit it is important to make sure that you can afford the repayment amount. Draw up a budget to keep record of your monthly expenses. You will then know if you can afford the repayment amount or not.

A guideline should be; not to spend more than 30% – 50% of your net salary on debt. You should pay not more than R1 500 – R2500 on debt repayment if you earn a net salary of R5 000, 00. Your home loan repayment alone could make up 30% of your net income.

Start paying off your debt one by one. Start paying extra on the least repayment amount first. If that account is paid up add that payment to your next account until that one is paid off, etc. Another way to do it is find out what the interest rates are on your loans or hire purchases and pay off the one with the highest interest rate first.

It is very important to pay regularly and not to skip payments. Many companies and banks are members of the Credit Providers Association. They send payment reports to the credit bureaus on a regular basis informing them that your account is in arrears if you have skipped payments. So even if you have missed one payment it shows on your credit record. If you missed 2 or 3 payments it would be unlikely for creditors to do business with you again. Don’t pay less than the minimum amount. However, if you pay more you will save interest so that you pay it off quicker.

When you have some extra cash put it in a savings account for unforeseen circumstances. This will enable you to still make payments even if your car breaks down etc. If you cannot pay for a long period of time, go and speak to your creditors and work out an alternative payment plan that suits you both. They will most probably spread the interest over a few months, etc.

My wish for you is to improve your credit score, to become debt free in 2010 and to become a homeowner. It is the single best investment you will ever make in your life!