5 factors that affect your credit score

By Athenkosi Sawutana

People often think that income, employment status, and age affect their credit score.

As much as these play a big role in determining whether you qualify for credit or not, there are five more important factors that affect your credit score that you might not be aware of.

Tip: Register here to get a free credit report.

1. Always pay on time

The most important factor that affects your credit score is how you pay your debt – call it payment history if you will. It accounts for 35% of your score.

Lenders are always willing to do business with someone they trust. The only way to know if the person is trustworthy is to look at their payment history.

If your instalments are not paid after 30 days, your creditor will report you to the credit bureau and your credit score will drop. If you regularly miss payments, your score will be affected.

ALSO READ: The ultimate guide to understanding your credit score

2. Keep your credit utilisation below 30%

Your credit utilisation refers to the amount of credit you make use of that’s available to you and it counts 30% of your credit score. The only way to measure your credit utilisation rate is through revolving credit. This is where lenders check how reliable you are when it comes to credit.  

Let us say you have a credit card which has a credit limit of R20,000 and the lenders find that you use more than 30% of that limit monthly, your score will be badly damaged. No lender wants to lend money to someone who is overindebted or heavily reliant on credit because the chances are higher that they will default on their payments.

3. Increase your credit age – the older the better

People who have no debt at all often have a low credit score. This is because lenders have no proof that they will pay because they have no credit history.

If your credit account has recently been opened, the lenders will still be hesitant to grant you credit because it’s still hard to see whether you are a good debtor or not. People with old credit accounts usually score better because they’re traceable.

Remember, you can have a good credit age but if your payment history is bad, your chances of getting credit will be slim. Your credit age affects 15% of your score.

4. Have more than one kind of credit

It’s important to have both instalment loans and revolving credit. Instalment loans consist of personal loans, home loans, and vehicle finance. Revolving credit includes credit cards, store accounts, and overdraft facilities.

Lenders want to see how you handle different credit accounts. The more diverse your portfolio is, the higher your score will be. This factor contributes 10% to your credit score.

5. Reduce your credit enquiries

Credit enquiries are divided into two categories: hard enquiries and soft enquiries.

Soft enquiries have no impact, but hard enquiries play a significant role. Hard enquiries are those enquiries made by a lender every time you apply for credit.

If your credit report shows that you have made six or more of those within 45 days, your credit score will go down.

If you'd like to view your credit score, click here.

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