Banks and creditors use a credit score to predict how likely a person is to pay off their loans and credit card bills on time.
Your Credit score is calculated using a formula that evaluates the following:
- How well or bad you pay your bills.
- How much debt do you carry?
- How all of that stacks up against other borrowers.
In effect, it tells you in a single number what your credit report says about your management of existing credit.
If you are using TransUnion, the number ranges from 0 to 999, with 0 being a bad score and a good score starting at 681 and a score between 767 and 999 being very well.
If you are using Experian, the number ranges from 300 to 850, with 300 being a bad score and a good score starting at 670 and 850.
How to Build a Good Credit Score
Building a good credit score comes down to using credit responsibly over time. The same is true when it comes to maintaining a good credit score. Here are five things you can do:
- Always pay your bills on time. To meet this goal, consider setting up automatic payments or electronic reminders to help you remember payment dates.
- Stay below your credit limit. Experts recommend keeping your credit use below 30% of your available credit—across all your credit card accounts.
- Keep an eye on your credit history. Showing responsible credit habits over a long period can help your credit scores.
- Apply only for the credit that you need. By applying for multiple credit cards and loans over a short time, creditors may think your financial situation has changed for the worse.
- Check your credit reports. Because your credit scores are based on the information in these reports, errors can hurt your credit scores.
What Affects Your Credit Scores?
So you can see that credit-scoring models and credit reports are two factors that determine your credit score. But if you don’t know what information from your credit report is being used, it is not much help to you.
So, here are a few factors that typically make up a credit score:
- Payment history: How well are you at making payments on time? Late or missed payments can reduce your credit scores.
- Debt: How much current unpaid debt do you have across all your accounts? This can include credit card debt, car loans and many other types of debt.
- Credit utilization rate: Reflects how much of your available credit you are using compared with how much you have available. Credit utilization is usually expressed as a percentage.
- Loans: How many loans you have, and the type of loans, such as revolving credit accounts or instalment loans. Sometimes this is called your credit mix.
- Credit age: How long your accounts have been open and how you have used your credit? What qualifies as your oldest line of credit depends on what is being shown in your credit reports.
- New credit applications: How many times you had recently applied for new credit? The effect on your scores might be minor. The Hard Enquiries give a terrible impression to creditors and banks when they perform credit checks.
Key Takeaways
- You have more than one credit score.
- Your scores vary based on which platform you are viewing it from.
- TransUnion and Experian are popular credit bureaus in South Africa.
- Scores from TransUnion range from 0 to 999.
- Scores from Experian range from 300 to 850.
Good Credit Scores in a Nutshell
Using credit accounts and paying your bills on time can help you establish credit and can lead to good credit scores. And avoiding late payments and having low credit card balances could also help you maintain good credit.
You can also consider using a credit-monitoring service, like ClearScore, to keep an eye on what’s in your credit reports and where your credit scores stand.
