To qualify for a home loan today is so much more difficult than what was the case three years ago. Banks were granting credit more easily and there were a number of players in the home loan market all competing to grant you a home loan. The National Credit Act that was implemented in 2007 changed all that. On top of that the world went into recession in 2008 and obtaining any type of credit became even tougher.
The National Credit Act and the Credit Bureaus
The National Credit Act not only regulates how the banks grant credit but all credit providers in South Africa. It has also laid down certain rules for the credit bureaus to follow, including procedures on how you can get incorrect entries removed from your credit report. The act required the bureaus to remove information below R500 as well as paid up judgements. There is also a credit information Ombudsman who can be contacted if you have unresolved issues with a credit bureau.
What is on my Credit Report?
So what is a credit report and how do you know if you have not been blacklisted by mistake? Your credit report holds information about how you handle any credit you may have. It will answer questions such as: Do you regularly pay your debt and do you pay the full amount required? What is the total extent of your debt? How often do you apply for debt? The report gives information about past and current behaviour.
What is Blacklisting?
Blacklisting can either be a judgement or an adverse listing by any credit provider. An adverse listing can be for something small (you may think) such as paying your accounts late. Judgement information remains on your credit record for five years and other adverse listings for two years. If you have repaid the debt in full you can apply to have the entry removed earlier. Remember it is not just banks that provide credit bureaus with information but retail stores and any other party who you may owe money to, even your landlord should you be renting a house.
You are entitled to a free credit report once a year, during the month of your birthday, after that at a fee of no more than R20 per record. The main credit bureaus in South Africa that deal with personal (or consumer) credit are TransUnion ITC and Experian.
So, will the bank grant me a home loan if I am blacklisted?
It is not impossible but highly unlikely in today’s credit environment. The bank will require you to present them with proof that you have paid back in full any judgements against your name. The bank must establish affordability and your credit record will provide a lot of information in this regard. There may be a very good reason why a judgement was taken against you and if the bank is satisfied with your explanation they will still consider your application. If the bank approves a home loan for you one of the conditions will most likely be a very large deposit, as high as 50%. They may also require that you find someone to stand as surety for the loan.
There are credit grantors advertising that they will grant you a home loan even if you are blacklisted. Be very careful that you don’t just get yourself into more trouble. Make sure that the organization is a registered lender in terms of the National Credit Act.
The best course of action is probably to get your credit record clear before applying for a home loan and rent in the meantime. This will require a lot of patience and maybe even take you a number of years but in the end it will be worth it. You will have peace of mind and will enjoy your home so much more when you know that you can afford it.
Tips to get your credit record back into shape:
- Draw up a monthly budget and stick to it – forget about the luxuries for now.
- Pay your existing credit on time and pay the full installment.
- Cut up those credit cards and store card until you have cleared all your debt. (Look at what it is costing you in interest!)
- Don’t enter into any new debt agreements.
- Explain your situation to your friends and family to get their support.