Guide To Credit Scores

Credit scores are not well known but their importance is more than we can imagine. For business owners credit scores can be the difference between getting funding and not getting it. For regular South Africans, a credit rating can determine whether or not you can purchase big assets (house, car, property etc.) or apply for credit accounts.

As important as credit reports are, there is little information on how it works, how to strengthen it or what factors affect its strength. Additionally, little is known about how your score is calculated and what the right credit rating is to have.

For business owners, knowing how credit scores work can help them improve and, in turn, ensure their funding applications are approved quickly. For others, a healthy credit report can play a significant role in whether or not you will get your dream home.

Because of the lack of information, this guide will focus on credit scores: how you can check yours and how to improve it.

Your credit score is designed to show you by way of number, the strengths and weaknesses of your credit report. It is a number which shows how your credit standing compares with other consumers or businesses.

The main difference between a personal credit report and a business credit score is that the first is solely focused on the individual’s credit history, whereas the other is based on the business credit report.

The information present on your credit report is used by most lenders as an important contribution to the development of their own credit risk score. Your credit rating is calculated using a formula that assesses how well or badly you pay your bills, how much debt you have and how all of those factors stack up against other borrowers.

In terms of the rating of your credit, the scores range between 0 and 999. The rating is as follows:

Poor (0-486)
Unfavourable (487-525)
Below average (527-582)
Average (583-613)
Favourable (614-680)
Good (681-766)
Excellent (767-990)

Your credit rating will be between any of these ratings. If it’s too low, you will need to do some work to improve it so you can qualify for loans and other forms of credit.

Note: The above scores are those from TransUnion. Each credit bureaus have different score ranges.

Having a good credit report will only increase your chances of getting a loan. It will show lenders that you know how to handle your debts and that you have a history of paying your loans and accounts on time.

Your credit report considers factors such as credit use, payment history and age of accounts into consideration. Lenders will be able to see how your finances are holding up and have been holding up over the years. Additionally, a good credit score can help you qualify for loans with reduced interest rates.

A bad credit rating hinders any chances you have of getting a loan. It can show lenders that you have missed repayments and have no credit accounts which showcases you are able to pay every month, and it also shows that your income is inconsistent.

You need to improve your credit rating if you are looking for loans, whether for you or your business. Some lenders will not consider your credit score when it comes to personal loans but it’s always better to have a good credit score rating.

Credit bureaus are responsible for the gathering and organising of information about consumers. They use this information to create consumer credit reports and sell the reports (and the credit scores) to creditors.

Each credit bureau has its own credit range that they use to calculate your credit score. Some of the credit ratings range from the main credit bureaus in South Africa are:

• Experian: 0-740
• TransUnion: 0-999
• Xpert Decisions Systems: 0-1000

Because these organisations have different credit ranges, your credit score will be different for each one. This means that your score can be 580 on Experian, 900 at TransUnion and 650 at Xpert Decisions Systems.

Although these platforms have different scores, it does not guarantee that the lenders will approve your loan application. Individual lenders typically score your application based on their own criteria, including your past relationship with them.

If you need to check your credit score, there are many ways to do it. You can either sign-up for a platform which will provide you with regular updates on your credit report or you can ask for it from a bank.

Credit Score Platforms

Some of the best platforms for checking your credit score include:

ClearScore

ClearScore is a platform which works to help its users improve their financial well-being. On ClearScore you can access your financial data including your credit report, credit score and open banking data. ClearScore defines itself as a financial marketplace and works with most financial institutions such as banks in South Africa.

To check your credit report on ClearScore, you will need to sign up on the platform. You can do this by entering your e-mail address and other details. Once you have signed up, ClearScore will look at your credit report and give you a score out of 740.

Experian South Africa

Experian South Africa allows you to view your credit score and get unlimited access to your full credit report for free. The platform also lets you set up, maintain and track your monthly budget. Experian South Africa also works to educate its users on maintaining their finances and their credit scores.

To receive your credit report from Experian South Africa, you must register a profile on the platform. You will need to enter details such as your name, surname, email address and your mobile number. Once that is done, you will need to create a password for your profile.

My Credit Check

My Credit Check is an online credit check platform. The company asks you to enter a few details such as your ID number, name, email address and mobile phone number. Once you have registered, you will be able to access the My Credit Check portal which will show you your credit score (from Experian) and you can download your credit report.

TransUnion

As mentioned above, TransUnion is a credit bureau, but it also serves as a platform where you can get a credit report. To get your credit report and credit score from TransUnion, you will need to register a profile on the platform.

Once you enter your details, your profile will be created and from there you can get your credit report and your credit score.

Nedbank

Nedbank has a credit score tool which gives you access to free and unlimited credit checks. The tool also provides you with regular tips on how to improve your credit health, a guide on what might be affecting your credit health and a way to check your credit score.

Before you can receive your credit score, you will need to create a Nedbank profile.

Old Mutual

Old Mutual has a tool called CreditView which has many features. By using the tool, you can check on things such as your credit score, and credit report simulator and monitor your credit score history for up to 12 months.

For business owners, you can sign up for the Old Mutual SMEgo platform. On SMEgo, you will be able to view the credit score of your business and see which loans you potentially qualify for.

Note: The Old Mutual CreditView tool is powered by TransUnion. This means your credit score will be in the range used by TransUnion.

These platforms are some of the best credit score platforms.

There are many ways you can improve your credit rating. Some of the things you need to do can be done within a short period of time (weeks or months). Others need more time in order for your credit to improve properly.

How To Build Good Credit

The following tips will help you improve your credit score.

1. Review your credit reports constantly.
2. Ensure you have a handle on your bills and other loan repayments.
3. Use 30% or less of your available credit (if you have a credit card).
4. Do not apply for more credit/loans if you have existing loans.
5. Ensure that any credit accounts are up to date with payments or paid off.
6. Consider debt consolidation.
7. Track your progress with credit monitoring and check your credit score regularly.

Each of these tips will help improve your credit report and build good credit. Some of the steps might take a bit longer especially if your credit rating is low but the long-term benefits will be an advantage for you.

This guide and the information within it will help guide you towards having a good and healthy credit report. Once your credit report is good and healthy, it will positively affect your credit rating.

Remember, a positive credit score means you can apply for loans for your vehicle and home successfully. For a business owner, a positive credit rating can almost guarantee that your business loan will be successful and that you will be able to expand your business or cover any financial pitfalls.