Tenants and credit score
For those in the rental market, a credit score is a crucial first step that landlords take to identify whether you can afford to pay the advertised rent and potentially be a reliable tenant. Most landlords, managing agents, estate agents, and banks run a credit check through a credit bureau before considering you for a rental property.
Credit scores determined by credit bureaus
There are four main credit bureaus in South Africa that monitor your credit information:
Each bureau allows you access to one free personal report annually, letting you understand how banks and other creditors view your financial health. This is also an opportunity to take steps to improve your credit score if needed.
Credit scores are calculated on a sliding scale, ranging from poor to exceptional. Anything below 600, which is considered good, may require improvement. You should also ensure your rental history is included in your credit report.
What causes a low credit score?
- Late or missed bill payments.
- Declaring bankruptcy.
- Overspending on credit cards or exceeding withdrawal limits.
- Not having any credit history.
- Identity theft.
- Failure to meet financial obligations due to not reading the fine print.
- Being delinquent on accounts.
- Debt collectors or garnishments.
- Applying for too much credit.
- Not meeting rental payment obligations.
The disadvantages of a low credit score
A low credit score may make it harder to rent a property, as landlords consider you a risk. Other effects include:
- Struggling to secure a lease without a co-signer.
- Potentially higher deposits.
- Difficulty in getting household insurance at lower premiums.
The advantages of a good credit score
- Better negotiating power for rental terms and prices.
- Lower security deposits.
How to improve your credit score
Depending on your circumstances, your credit score can improve in as little as three months, but it may take longer depending on your debt situation. Credit bureaus will recognize consistent payment history and debt reconciliation. Ways to improve your score include:
- Using only 30% or less of your credit card limit and paying the full balance each month.
- Registering to vote, which helps lenders confirm your identity and location.
- Always paying your rent on time and in full.
- Avoiding applying for too much credit at once.
- Disputing any inaccurate information on your credit report.
- Keeping old accounts open and managing them responsibly.
Other important considerations
Include rental history to improve credit scores: Many tenants are unaware that rental payment history isn’t automatically included in their credit score. By ensuring your rental payments are reported, you can significantly improve your credit score. Research shows that 80% of tenants benefit when rental histories are reported.
Credit reporting varies by lease type: Fixed-term leases are reported like loan repayments, while month-to-month leases are treated like credit card payments. Either type can positively impact your credit score when reported.
Improving home loan eligibility: A solid rental payment history improves your chances of qualifying for lower interest rates on home loans, potentially saving you thousands over the loan's lifetime.
BetterBond application success: Applying through a bond originator like BetterBond increases your chances of approval, especially if your rental history boosts your credit score.
Make small purchases and pay off credit regularly: If you don't have much of a credit history or limited activity on your credit accounts, one way to improve your score is by making small, manageable purchases on a credit card and paying them off in full each month.
This builds a record of responsible credit use, showing that you can manage debt effectively. Even minor regular payments can positively influence your credit score over time.
Consolidate your debt: If you have multiple credit accounts with varying balances, consider consolidating them into a single loan with a lower interest rate.
By paying off multiple debts and managing just one payment, you can improve your credit utilization ratio and reduce the risk of missing payments, both of which contribute to a healthier credit score. Additionally, having a more manageable repayment structure can improve your ability to meet your financial obligations on time.
Credit scores play a significant role in determining rental costs and a tenant’s ability to secure loans for rent. Maintaining a healthy credit profile can lead to more favorable rental terms and greater financial flexibility.
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