A large percentage of South Africans don’t know their credit score and aren’t aware that it can impact future borrowing. At bsmart, we want to help our members be financially responsible, and so we’ve looked at what industry experts have to say about credit scores – what they are, why they are important and how to improve them.

What is a credit score?

While your credit score forms part of your credit report, Business Tech claims that it’s “almost the single most important item on your credit report” and it’s what potential credit providers will look at to make a decision on whether or not to extend you a credit facility.

Your credit score is a three digit number that reveals your credit worthiness. Depending which credit bureau you use, the brackets are slightly different. A TransUnion consumer credit score ranges from 0 – 999, with the following brackets:

  • excellent 767 – 999        
  • good 681 – 766        
  • favourable 614 – 680        
  • average 583 – 613        
  • below average 527 – 582
  • unfavourable 487 – 526        
  • poor 0 – 486            

The higher your score, the better your credit health. This means you are a responsible borrower who is likely to repay your debts on time and so you pose less of a risk to a creditor.

Why is a credit score important?

Your credit score can impact if you qualify for a loan, the interest rate you will pay and whether or not you can finance a new house or car. By regularly checking your score you can pick up any scams, where someone is illegally using your personal information, and if your score is lower than you think it should be, it could be a sign of an error you can dispute.

However, Just Money warns that you be cautious about raising a challenge with your credit bureau, as a dispute that has been proven invalid will result in your credit record remaining as is, with the false dispute recorded.

When you know your credit score it also prepares you for your application outcome and you won’t be caught off guard by a less than favourable result. Knowing your score forms part of your overall financial health and it gives you control, allowing you to take steps to improve a bad score and maintain a good score.

How is your score calculated?

A credit score is calculated based on your credit habits, such as your payment history, how you handle debt, the amount you owe, if you abide by the conditions of the deal and the number of “hard enquiries” a financial institution makes on your credit report.

There are a number of factors that will negatively impact your score, such as missed or late payments, too much debt, a court judgement and account balances that are continually close to the credit limit.

How to improve your credit score

Knowing your score is the first step to improving it or maintaining it, but be aware that it can take months or years to build up a good credit history. Use one of South Africa’s four main credit bureaus - TransUnion, Compuscan, Experian, and Xpert Decision Systems (XDS) - to check your score, as you get a free copy of your credit record every year. You can improve your score by:

  • Never missing a payment
  • Paying off debt rather than moving it around
  • Having a healthy mix of credit (store accounts, credit cards, service contracts, etc.)
  • Keeping your credit facilities to less than 35% of your limit
  • Closing unused, old credit accounts
  • Not taking on too much debt
  • Avoiding judgements and going to court
  • Having a stable job

With gradual improvement to your score, you will have a better chance of getting credit on favourable terms. It is important that you not wait until you are about to apply for a credit card or a loan to check your score.

According to statistics on Business Tech, of the 24 million credit active South Africans, only 3% have ever seen their credit report and understand its contents. Many people don’t check their score as they believe it is too difficult or they are afraid of the results. There is also a misconception that if you check your score often it will affect your credit, however, as long as it is a “soft enquiry” - when your credit report is checked as part of a background check - then your score won’t be impacted.

At bsmart, we are proud that we help our members save, by paying out cashback bonuses every three months or annually. We also share tips and advice such as protecting yourself against online fraud, savvy ways to spend smart in 2019, and how small changes can result in big savings. To learn more about bsmart contact us or click here to sign up directly through our website.

Disclaimer: bsmart does not provide financial advice. The above article is for information purposes only, to share current economic and financial topics and trends. Please consult a suitable and qualified financial services provider if you require financial advice.