Your credit score has an impact on many areas of your financial wellbeing.
If you have a good track record, and thus a good credit score, you’ll be more likely to, among other things, get approved for a home loan or be offered lower interest rates on credit spends.
We identified the most pressing questions about credit scores, and answered them in this easy-to-understand guide.
- What does a good credit score look like?
Credit providers base their offers on the premise that the higher your credit score is, the more likely you are to settle your bills on time. And the lower it is, the less likely you are to make your payments on time.
However, each credit provider defines this score differently. One provider may consider you a great candidate, while another may think you’re average. The following brackets can be used as a rough indication as to how confident credit providers may be about your ability to manage your credit:
- 901 - 1000: Excellent
- 851 - 900: Good
- 801 - 850: Okay
- 601 - 800: Needs work
- 3 - 600: Not good
- 1 - 2: Not enough information to score
Your credit score is based on your payment history, the age of your accounts, the amount you owe, the number of hard enquiries that appear on your report, and any judgments or defaults.
- Your annual, free credit report
In South Africa, there are five main credit bureaus, namely TransUnion, Compuscan, Experian, VeriCred, and Xpert Decision Systems (XDS).
Each credit bureau offers one free credit check per person, per year. To get your free credit report, you can contact the credit bureaus above.
Note that some of these bureaus have partnered with, or created, unique organisations to assist you with your free credit check. For example, VeriCred has partnered with JustMoney to assist consumers to access their credit reports as often as they wish.
Tip: Stay informed about your credit score. Join JustMoney to get immediate and free access.
- What to do if your credit score is zero
We all start with a credit score of zero. Once we turn 18, we can start improving our credit score by diligently paying off small accounts.
In South Africa, the most popular way of doing this is by opening a store account at a local retailer, purchasing something small, and paying it off over time. For example, you could open a store account at Truworths, purchase a pair of sneakers, and pay it off over the next couple of months.
When you open your account, as part of the terms and conditions you sign, you will give Truworths permission to send your credit information to the credit bureaus. At the same time, you also grant the retailer permission to view your current credit report, so that it can calculate an appropriate credit limit, and an interest rate for your instalments.
If your application is approved (based on your employment and a regular income), you will be able to go home with those snazzy shoes you’ve been eyeing, and pay them off over time. Truworths will then inform the various credit bureaus whether you pay your account regularly, in full, and on time.
For the most part, this information is sent through to the bureaus at the end of each month. However, this will vary from one organisation to the next. Make sure you open a store account with an organisation that will send your credit history to the credit bureaus – this is not a requirement for credit providers. Large organisations are more likely to do this, but it’s important to always check with a store manager beforehand to make sure you’re not wasting your time.
- What will bring your credit score down?
Opening a store account and watching your credit score slowly climb is only half the battle. Once you’ve established yourself in the world of credit, you need to maintain your status.
But before looking at further ways to improve your credit score, you first need to understand what could ruin it.
4.1 Frequent hard enquiries on your credit report
When a person or organisation enquires about your borrowing history from one of the credit bureaus, you may see an impact on your credit score.
There are two types of enquiries: a soft enquiry and a hard enquiry.
A soft enquiry is when your credit report is accessed as part of a background check. For example, when you apply for a job, your future employer may run a credit check on you.
Other examples include checking your own credit report, or having it checked by an insurance company. Your permission is not required to perform a soft enquiry.
A hard enquiry, on the other hand, involves a credit check from a financial institution, such as a bank, where you’ve applied for a home loan or a personal loan, for example.
Unlike soft enquiries, hard enquiries can have a negative impact on your credit score. These are noted and kept on your credit report for two years, and if they occur too often, they can lower your credit score.
If possible, try to avoid more than two hard enquiries per year.
4.2 Missing or late payments to your credit providers
It can be tough to keep track of all of the different payments you need to make at the end of each month, and this becomes increasingly important when you need to settle your credit accounts.
If you miss a payment or you do not make a payment on time, this will reflect in your credit report, and have a negative impact on your credit score.
To find out by which dates you need to settle your individual accounts, have a look at the various terms and conditions, as well as the information stipulated on your statements.
4.3 Your credit accounts are all new
One of the most important characteristics of a borrower is long-term stability. Credit providers want to see how consistent a borrower is, and whether another institution already trusts them.
This is usually measured by the age of your accounts. For example, if you’ve had a credit account at your local retailer for five years, without incident, it shows you are consistent.
Having more than five years’ worth of credit history is considered good, so the sooner you open your first account, the better.
On the other hand, having several new accounts that are less than a year old is considered a red flag because it doesn’t show long-term stability. Therefore, exercise prudence.
4.4 Owing unmanageable, large amounts
Having too much debt is usually defined as “living beyond your means”. In other words, you do not make enough money to cover both your living costs and your debts.
Your debt-to-income (DTI) ratio is used as an indication of whether you’re overindebted or not. Have a look at the below formula to work out your DTI ratio:
Total Recurring Monthly Debt / Gross Monthly Income = DTI Ratio (expressed as a percentage).
According to Investopedia, consumers should try to keep this ratio at around 36%, with 28% or less of it being allocated towards monthly mortgage payments.
If your DTI ratio is too large, your credit score may be impacted. This is because credit bureaus believe responsible consumers won’t take on debt they can’t comfortably settle. Having an incredible amount of debt in relation to a small income means that a consumer will struggle to settle their accounts, while also covering their daily costs.
Another indication of whether you have too much debt is the percentage of your credit limit you choose to utilise. TransUnion recommends using 35% or less of your limit. For example, if your credit limit is R100, then you should not take out debt exceeding R35. Or if your limit is R2,000, you should not have more than R700 in debt.
4.5 Having judgments on your report
If you continuously default on your payments, you may be issued a court judgment. This is a last-ditch effort by your creditors to have you settle your debt with them.
This is not to be taken lightly because a note of this will remain on your credit record for five years, which may dissuade future creditors from lending to you. However, if you settle your account immediately after receiving the judgment, it will be removed from your record.
Note that the amount that’s due once you’ve received a judgment is usually larger than the original debt, because it includes legal charges.
Besides judgments, the following things will also be marked on your credit record:
- If you query something on your credit record and it turns out that you were in the wrong, this will be noted in your record and remain there for six months.
- Debt restructuring. If you are under debt counselling, this will be noted on your credit record. Once you’re debt-free, it will be removed.
- Sequestration. This is when your assets are removed to help settle your debt. This will remain on your credit record for five years, or until you have a rehabilitation order, which will also remain on your credit record for five years.
- What will improve your credit score?
The reverse of each of the above points will ensure that your credit score improves over time. For easy reference, here’s the flip side of the above list:
- Having infrequent hard enquiries on your credit record
- Never missing a single payment, and always making payments on time
- Having a range of credit accounts, some of which are older than five years
- Owing small, manageable amounts that don’t exceed a reasonable DTI ratio
- Not having any judgments, false complaints, debt counselling, or sequestration on your report
In addition to this, you can further improve your credit score by keeping your credit accounts open and diligently settling your debt over time. Even if you have the means to settle your debt immediately, it might be in your best interest to leave it on your account and pay it off slowly.
When doing this, make sure you pay slightly more than your monthly instalment, and try to pay your accounts on the same dates each month. By going above the minimum requirements, you’re showing your creditors you’re eager to settle your debt. For example, if you owe R500 and your monthly instalment is R50, you could make a monthly payment of R70 each month, and make sure it gets done on the 28th of each month.
Note that closing a credit account that you’ve struggled with in the past will not erase your bad credit history. It would be better to keep the account open and prove you can do better.
- What to do if there’s an error on your credit report
As a responsible consumer, it’s incredibly important to view your credit report regularly, and to report any discrepancies to the credit bureaus immediately.
Keeping track of millions of South Africans’ credit history is challenging, and mistakes do happen. If you realise that your credit score is low because of inaccurate information, you must inform the credit bureau from which you received your report.
- TransUnion: Call 0861 886 466 or log in online at www.transunion.co.za to put forward your dispute within three months of having received the credit report you’re querying. Fill in the “Challenge Form” and TransUnion will call you within 48 hours to give you a reference number. The investigation will last for 20 working days, and you will receive an updated credit report thereafter if there were in fact errors on your report.
- Experian: (1) Make sure you have a valid dispute, (2) gather the necessary evidence to back up your claim before contacting them, and (3) get in touch with the Consumer Relations Division by calling 0861 105 665, sending an email to consumer@experian.com, or visiting experian.com to start a new dispute online. Your case will be investigated for 20 working days, and your credit report will be updated if it’s found to be incorrect.
- Compuscan: Get in touch with the Consumer Care division by calling 0861 514 131 or sending an email to consumercare@compuscan.co.za. Alternatively, you can fill in the Compuscan Contact Us form, at www.compuscan.co.za.
- Xpert Decision Systems (XDS): You can lodge a complaint through one of two options: (1) Complete the Online Dispute Form at xds.co.za and remember to attach supporting documentation. You will receive an SMS confirming receipt of your submission. Your dispute will be investigated within 20 working days, and if you were correct, you will receive a resolution letter and a new credit report. You can also (2) complete an EDS Dispute Form – FORM 2 and email the completed form to dispute@xds.co.za, or (3) get in touch with the call centre on 0860 937 000. After speaking with a consultant, you will follow the same process as you would if you lodged your complaint online.
- VeriCred: Visit their website at www.vccb.co.za, complete their credit information dispute form and submit it online, or get in touch with their call centre on 087 150 3601. Make sure you submit the correct documents when lodging your dispute to avoid delays. You will need to wait 20 business days for your dispute to be investigated. You can also log a complaint directly on JustMoney’s credit platform.
Be cautious when you dispute your credit record. If your dispute is found to be invalid, your credit record will be left as is, and the false dispute will be noted on your report. If you are unsatisfied with the outcome of your dispute, you can contact the Credit Ombud or the National Credit Regulator.
- Your rights when it comes to credit
The National Credit Regulator implemented the National Credit Act in 2005 to prevent creditors from taking advantage of consumers.
South African adults have the right to apply for credit, but a credit provider has the right to reject an application if it believes there is a risk. However, credit providers may not unfairly discriminate against consumers when calculating their credit agreement, such as their credit bracket, monthly instalments, or interest rates.
It is not considered discrimination when a credit provider refuses to offer credit to minors, or minors who have not been emancipated. If you believe you’ve been discriminated against, get in touch with the National Credit Regulator, who will refer your complaint to the Equality Court.
Upon request, a credit provider must explain in writing why a consumer was refused credit, offered a lower credit bracket, or refused a credit card renewal.
If a credit provider accepts an application, the provider must ensure that the information on its credit plan is in plain and understandable language.
Consumers have the right to receive documentation and credit providers are not allowed to charge a fee for any original document.
- What if you can’t make your payments?
When you apply for credit, you may be required to take out credit life cover. This will be stipulated in the terms and conditions of the contract you hold with your credit provider. However, many South Africans are unaware that they are paying for this cover, and, as a result, they end up missing out on the benefits thereof.
Credit life cover takes over your monthly instalments at the onset of a disability or a dread disease, if you are retrenched, or if you pass away. This protects both you and your creditors from unforeseeable circumstances.
Your payments will be met when you’re unable to make them yourself, and your creditors will receive the correct instalments, regardless of whether you’re able to make them or not.
In 2017, the National Credit Regulator capped credit life cover at R4.50 per month for debt amounting to R1,000. For example, if you have R2,000 debt, you cannot be charged more than R9 for credit life cover per month.
Credit providers usually partner with an insurance company that offers credit life cover and the fees of this company are included in the terms and conditions of the providers’ credit contracts.
Note that you are legally allowed to request credit life cover from a different insurance provider, on condition that your chosen insurance company covers the same scope as the credit provider’s chosen insurance company.
If you have an open credit account dating before August 2017, it’s a good idea to find out how much you’re being charged for credit life cover – some cost up to R50 per month!
For accounts opened before this date, it’s still legal to charge above R4.50 for every R1,000 owed. But you now have the right to change insurance providers in order to decrease your fees.
If you are unable to pay your account for reasons that are not mentioned above, the best thing you can do is to contact your credit provider and let them know you’re struggling. It’s not guaranteed, but the credit provider may be able to adjust your instalments. Alternatively, if you realise you will not be able to make your payments in the near future, you may be more indebted than you realise.
In this case, applying for debt counselling or debt consolidation could prevent your credit score from being severely damaged. The sooner you deal with your debt, the sooner you can start rebuilding your credit score.
Not sure what your credit score is? Sign up with JustMoney and get your credit score for free.