Your credit score is a number that represents your creditworthiness. Lenders use your credit score to evaluate your credit risk. Generally, the higher your credit score, the lower your risk may be to the lender.
What is a credit score?
Why is it so important to build your credit rating?
How can you check your credit score?
Understanding what goes into your credit score and how you can make use of the free credit report will help you make better financial decisions.
It’s challenging to apply for a loan if creditors don’t have any basis for assessing your risk level. This is the importance of building your credit score. It’s best to open a credit account early and start taking small loans to build up your credit score.
What is a Credit Score?
A credit score represents your financial management skills: a low score is proof of your poor spending habits, while a high score shows you’re in control and you know how to budget your money.
The credit report reflects your whole financial history since you opened a credit account. The score you see in it is computed by considering accounts opened, loans taken, payments skipped, judgments received, and balances yet to be paid.
All credit data are sent to registered credit bureaus in South Africa, namely Compuscan, Experian, TransUnion, and XDS. They’re the ones who manage credit reports and scores and not banking institutions. Lenders send them a request to check your credit score when you apply for a financial instrument like credits or loans.
Below is a rough guide of what Experian uses to grade customers. Other credit bureaus may use a different scale, but they’ll usually have the same ranges:
- Excellent credit (650 and above)
The highest credit rating will get you the lowest interest rates on loans.
- Very good credit (600 to 650)
You’ll be given more affordable interest rates on loans.
- Good credit (550 to 600)
A fair score will get you slightly better rates than the usual.
- Sub-prime (490 to 550)
You’ll struggle to get any loan application approved. When you get approved, you’ll usually receive higher interest rates.
- Poor credit (490 and below)
You won’t be allowed to get a loan and may be recommended to undergo debt rehabilitation programs.
Credit scores aren’t fixed numbers since varying credit bureaus may be using different algorithms to arrive at a rating. However, the difference won’t be drastic that you’ll see a 100-point discrepancy in your scores.
Your credit score affects future financing options. It is the basis banks and similar institutions use in assessing whether they should accept your credit application. Checking your credit reports and scores will reveal whether you’re a high-risk borrower or someone who can pay on time.
Knowing your credit score is vital for making big purchases like getting a house loan or vehicle finance. You must regularly conduct a credit check to know your standing on credit institutions.
To check your credit score, you can get a free credit report from the major bureaus in South Africa.
Where to Check Credit Score Online
The major credit bureaus and several FinTech companies have provided a way for South Africans to check their credit score online. The service is also given in compliance with South African laws which state that once a year, you’re entitled to get a copy of your credit report for free.
Here are the online channels where you can request for a free credit check:
TransUnion Free Credit Report
TransUnion is one of the major credit bureaus in South Africa. It currently operates in Eight (8) South African countries, offering commercial and consumer solutions.
- You can get access your TransUnion report once a year for free.
- You can get a one off report for R40 or you can pay R40 per month for a subscription.
- The TransUnion score can range from 0-999.
You can request for a TransUnion credit check on their website. Just enter your personal information and present proof to verify your identity and get your free credit report.
CompuScan Free Credit Report
CompuScan is one of the leading credit bureaus in South Africa. It has been providing intelligent insights for emerging market enterprises since its foundation in 1994.
- You can get one free report a year from CompuScan.
- You can also purchase a one-off report for R25 or you can choose from 3, 6 and 12 month paid plans.
My Credit Check is CompuScan’s portal for obtaining your free credit score check. With 5 simple steps, you can access your credit report and receive tips on how to improve your score.
Experian Free Credit Report
Experian is a global brand that utilises their data analytical expertise to empower businesses and individuals to achieve their full potential. In South Africa, they champion the development of South Africans by committing to Transformation and Broad-Based Black Economic Empowerment (B-BBEE) programs.
- You can get free access to your Experian score and report as often as you like through ClearScore.
- Everyone is entitled to one free statutory credit report a year through Experian’s CreditExpert service.
- Alternatively, you can pay R21 for a month’s subscription or R145 for a yearly subscription.
- The Experian score ranges from 0-705.
Experian is committed to helping South Africans manage their finances. Signing up on their CreditExpert portal will give you access to a free credit score check.
XDS Credit4Life Credit Report
XDS is one of the biggest credit bureaus in South Africa and is known for utilizing technologically advanced solutions to help customers make better financial decisions. They make use of the highest standards of security to ensure data privacy.
- XDS Credit4Life offers 30 days free access to your XDS report.
- Alternatively, the XDS Credit4Life consumer club gives you access to your report for R99 per year.
Credit4Life is the division of XDS where you can get your free credit reports and scores.
ClearScore Credit Check
ClearScore is a FinTech company that aims to help everyone achieve financial wellbeing. They’ve begun their mission by providing everyone access to a free credit report.
Visit their website to sign up and receive your free credit check online.
Finance Man Credit Check
Finance Man is an independent organization that makes sure you get access to a free credit score check online.
Visit their website and sign up to get your free credit report.
You can check your credit score as many times as you want beyond the first free report. There’s a small fee, though, for requesting it from any of the providers mentioned.
What Affects Your Credit Score?
Your credit score is not some magic number pulled out of thin air. Its computation is based on the following factors:
Late payments will negatively affect your credit history. It can remain on your record for years, so best to repay all debts on time. In addition to this, there are also late payment fees that will just make the debt harder to repay.
Missing a payment is even worse. Not only will it generate a bigger interest since you’ll be having a larger balance to settle, but also drag down your credit record.
Consistent on-time payments, on the other hand, will help you build a better credit score.
There’s a limit to how much you can charge on your credit card. But this doesn’t mean you should max it out every chance you get.
Credit experts advise that you use up to 35% only of your credit limit to achieve the ideal credit utilization ratio.
Being blacklisted or missing out on a payment for months will leave a bad mark on your credit history. These situations can greatly drag down your credit score.
The length of time you’ve maintained your account in good standing has a count in assessing your credit score. The longer the account remains open, the better.
The number of credit or loan accounts you’ve opened or applied affects your score. Applying for too many credit products in a short period is seen as a bad sign by credit bureaus.
But this doesn’t mean you can’t shop around for the best loan deals. There’s a set period when you can enquire for several loans without severely harming your credit score.
ALSO LEARN: 15 Ways to Maintain a Good Credit Score
How to Read Your Credit Reports and Scores
Now that you have your credit report on hand, it’s time to look at what it says.
Your credit report will contain numerous information, but you don’t have to be confused about the things to look for in each section. Here’s a breakdown of what to look for in credit reports and scores:
Your name, address, contact numbers, and employment information can be seen here.
It’s not surprising to see variations in the spelling of your name or address. As long as the information belongs to you, you won’t have any problems.
However, if the information presented on the report identifies another person, you must raise the concern to respective credit bureaus.
This portion will show the tally of the credit accounts you’re currently managing. You’ll also see the summary of defaults, notices, or judgments listed under your profile. Any remaining balance yet to be paid and the date of the last payment activity will also be summarized here.
The number of enquiries made to your credit account within the last 2 years will also be shown here.
The credit summary section is also where you can check your credit score. You’ll see how your standing fares relative to the whole rating system. The factors that affect your credit rating are also summarized here.
Look for errors in the tally or balance you have on the account. All information here should be correct and factual. Any mistake should be reported immediately.
Defaults, judgments, and notices
This section will detail any instances of judgments or defaults you’ve received in the past years. Any information listed here can greatly damage your credit score.
Failing to repay a lender and disregarding notifications will result in court actions that will drag down your score. If you receive a judgment, expect to be given the lowest scores possible.
Payment delinquencies, repossessions, and debt write-offs will remain in your credit history for years. Rehabilitation, sequestration, and administration are even worse as they’ll remain in your report for up to 10 years.
Pay special attention to errors here. Though it rarely happens, your account might be mistaken for another with a bad credit record. Report any mistakes you find here to immediately resolve them on your next credit score check.
In this section, you’ll see the date, enquirer, details of the enquirer, and the type of enquiry done to your account.
There are two types of credit enquiries that exist in the credit reporting system.
A hard enquiry is recorded when credit institutions look at your credit report to check your eligibility for a loan or similar credit products. This can negatively affect your credit score which is why you should be careful in applying for a loan. Multiple debt requests within a short period can reduce your score since it can be seen by credit bureaus as desperation to borrow money.
A soft enquiry is listed when you claim your free credit report to monitor your score. Landlords, utility providers, cellular companies, and lenders may also do a soft enquiry on your credit score to assess your financial capability. Soft enquiries won’t affect your credit score in any way.
All credit enquiries usually remain on your report for up to two years.
There’s nothing much to do here, but it won’t hurt to also check each entry, especially hard enquiries on the list. They should reflect the dates you’ve applied for a loan.
This section shows the detailed report of your account for the past 24 months. Symbols and colours are often used to depict the current status of each account.
The details of each account, including the date it was opened, the monthly instalments, the current balance, and the two-year payment history, can all be seen in this section.
It can be tedious to read through each entry, but it’s a vital process to ensure everything in your credit report is correct.
Your report may contain errors that can drag down your credit score. Unreported problems will remain on your credit report and will continue to affect your score unless you raise them.
There are services for repairing your credit reports and scores, so consider getting them to help you resolve issues you found.
Your credit score plays a big role in applying for loans and similar credit products. A high score will give you the best deals, while a low rating will make it hard to apply for credit products.
Credit scores vary depending on how you manage finances. It can go down or up, so it’s best to always control your expenses and improve your spending habits.
It’s your responsibility to make sure your finances are in order. Make it a habit to regularly check your credit score by getting your free credit report annually. This will give you an idea of the possible rates you’ll get when you apply for financing in the future.