If you are planning on buying a home, the first thing you should do is go check your credit score.

The purpose of your credit score is to inform prospective lenders how much of a risk you present when you apply for a loan. If a lender perceives you as a high risk, they will either decline the loan or charge a higher interest rate to compensate for the higher risk they are taking.

According to mortgage originators if you are applying for a mortgage, the minimum credit score you need to have is what a credit bureau would rate as “good”. This scale varies slightly depending on which credit union you use, but you definitely need a score of over 600 ‒ preferably 650 ‒ to give yourself a fair chance.

If you have a good score, lenders will usually give you loans based on the prime lending rate, which is the interest rate used by banks. Customers with very good and excellent credit scores may get prime  minus 1% or minus 2%, and customers with poor credit may get up to prime  plus 3%.

Using an example of a R1.5 million home loan paid off over 20 years, someone with a prime plus 2% interest rate would pay around R670 000 more than someone who secured a prime  minus 1% interest rate.

Your credit score is not the only factor

Be aware however that every loan is negotiated on its individual merits and your credit score is not the only factor that will affect your loan. Factors such as the size of the home loan, the size of the deposit and the area that the property is situated in are some of the additional factors that influence the interest rate.

Your bank will also take into account your own banking behaviour, such as whether ot not you bounce debit orders.

The best way to achieve a good credit score is by always paying on time, not maxing out your affordability or credit lines, and where possible paying more than the minimum amount required.