Your credit score is a number that helps lenders like banks and other financial institutions decide how likely you are to repay a loan.
Having a good credit score means that a bank thinks you have a high probability of repaying a loan, so there’s a greater chance they will offer you products like a home loan or car finance. You’ll also get a better interest rate on the loan you receive.
Having a bad credit score, however, means that financial institutions are less likely to offer you loan products, and if they do, the interest rate will be much higher due to the extra risk they’re taking on.
What if I have no credit score?
That’s fine — no score doesn’t equal a bad score. Your credit score simply reflects your history of paying back loans. So, if you’re applying for a credit or store card for the first time, chances are you won’t have a credit score yet.
The only issue with not having a credit score is that if you try to apply for a big loan — if you want to buy a house, for example — then the lender won’t have anything to evaluate you on and might consider you a higher-risk borrower than you really are.
How is my credit score calculated?
There are various independent credit bureaus in South Africa. TransUnion, Experian and XDS are some of the most popular. Each bureau uses a different system, but the basics are the same: they look at how consistently you pay your bills and whether you pay on time; the number and total outstanding balances on all your credit agreements; and any negative information like court judgments against you.
How can I improve my score?
- Don’t miss any repayments and don’t pay late.
- If you don’t have a credit score yet, some institutions offer a product called a ‘credit-builder’ to enable people with no score to get onto the ladder, or people with low scores to start again. Ask your bank.
- Pay your credit card off in full each month. Besides credit card interest being very expensive, this also reflects well on your credit score.
- Don’t apply for too much credit at once. It’s a warning sign to the bureaus that you might be in financial distress. Actually, don’t apply for too much credit — full stop. Having access to credit increases your risk of going deeper into debt.
- Try to stick with a single credit card. One lender trusting you for several years can have a positive impact on your credit score.
- Close accounts after you’ve settled them — especially store accounts.
- Pay close attention to your personal information. The details saved for the financial products you use must match the details on the credit bureau database, otherwise your score might not be recorded.
Don’t lose faith!
The good news is that your credit score isn’t fixed. You can always improve it by taking the positive steps mentioned above.
Start by checking your score. Make a cup of tea and visit the websites of the various credit bureaus. You might be charged a fee to see your score; if you don’t want to pay it, there are some free online tools available that aren’t associated with any particular bureau. If you suspect an error, take it up with the bureau or your bank.
Once you know your score, you can work on maintaining it or improving it. Good luck!