Credit score 101

What is a credit score?

Your credit score is a number ranging from 0 to 999 (depending on which credit bureau you use). The number is a summary of your creditworthiness, which refers to how much of a risk lenders believe you to be. The number ranges from high risk to minimal risk.

Your credit score is used by credit providers to evaluate your behaviour around debt and whether or not you will repay your loans on time. Basically, it’s their way of deciding how much risk you potentially pose to them, so that they can charge you accordingly.

Why should I be interested in my credit score?

Because your credit score affects whether the bank will loan you money for your next car, or home, or give you a credit card or even just a personal loan. Your credit score is even used in the calculation of insurance premiums payable on your car and even household content (otherwise known as short-term insurance). If you have a good credit score, it’ll increase your chances of being approved for debt and paying lower short-term insurance premiums. If your score is bad, you will find it difficult to access credit. Your home loan application may be declined or if you are offered one, it’ll be subject to a high interest rate versus someone with a good credit score.

How do I check my credit score?

According to law, South African citizens are eligible to have access to one free credit report a year. You can obtain this annual free credit report from any one of the following credit bureaus: TransUnion, Compuscan, Experian, and XDS. The website ClearScore also offers a free credit report and a coaching tool to assist with building a credit score, improving it and repairing your credit score if it falls within a certain category. The FNB Banking App has a credit status functionality under ‘Nav Money’ and TymeBank has an app called “TymeCoach '' which also provides credit status for free.

What is considered a good score?

A good score can range between 620 and 999 depending on which bureau is being used and depending on the information used to calculate your score. So while a score of 620 is very good at one company, it might mean only an average score for another company. The general rule is that the higher the credit score, the lower the risk you represent to the credit provider. Similarly, the lower the credit score, the higher the risk you represent to the credit provider.

So the lesson is: Chase those high credit scores just like you chased all those high scores when you were a kid.

What can you do to improve your credit score?

• Don’t miss any payments on your loans or credit cards. A good way to ensure that this is sorted is to set up automated, or scheduled, payments on your account. You’ll need to set these to the minimum value but it’s always better if you can pay in a little more than that with each instalment.
• Pay off debt.
• Close old and unused accounts or credit cards.
• Slow down or stop making new credit requests. That might be interpreted by credit providers, as you being hungry for debt.
• Try not to use more than 30% of your credit limit on your credit cards or on your overdraft facility.
• Spend responsibly.

What things impact my credit score?

• Your general behaviour around the use of your credit.
• Your payment history. In fact, this is probably the most important factor because credit providers check how frequently and how much you pay on your debt.
• The amount of debt you actually have versus the amount of credit available to you.
• Court judgments, the length of your credit history and the period over which different account applications and enquiries have been opened, all play an important role.