Financial Fitness - Credit Scores

Understanding Your Credit Score

By Jessie Taylor

More and more South African consumers are accessing credit, according to the National Credit Regulator (NCR). The NCR highlights that the number of consumers with credit agreements has grown, particularly in the first quarter of 2025. As of this period, around 25.8 million credit agreements were in place, with a significant number of consumers holding multiple types of credit. While many individuals rely on credit to manage their finances, there are concerns about the impact of rising debt levels on consumer financial stability. This highlights the need for responsible borrowing, and one tool consumers can use to monitor their credit is their credit score.

The Basics

A credit score is an essential financial tool that reflects your ability to repay debt and manage credit. It’s a number that lenders and financial institutions rely on to assess the risk of lending you money. In South Africa, credit scores generally range from 300 to 850, with higher scores indicating a stronger credit history and a greater likelihood of securing financial products, such as loans and credit cards. However, understanding your credit score and knowing how to improve it can be pivotal for achieving financial stability and unlocking better opportunities.

The key factors that influence your credit score include:

• Payment History (35%): Your track record of paying bills on time is one of the most significant factors.

• Credit Utilisation (30%): This is the ratio of your current credit card balances to your available credit.

• Length of Credit History (15%): A more extended credit history is more favourable because it gives lenders more insight into your financial behaviour.

• Credit Mix (10%): Having various credit types (e.g., credit cards, mortgages, and auto loans) can positively impact you.

• New Credit (10%): Applying for too much credit quickly can negatively affect your score.

A credit score differs from a credit report. Your report is a detailed record of your credit activity and contains information about your credit accounts, such as loans, credit cards, and payment history. It also includes details of any defaults or collections on your accounts.

Your credit score is a snapshot of your financial behaviour, whereas the credit report provides a comprehensive view of your credit history. To improve your credit score, it’s crucial to monitor both, ensuring that your report is accurate and up to date.

In South Africa, checking your credit score is relatively simple. Several services, including financial institutions and credit bureaus, provide access to your credit score at no cost. You can also request a credit report directly from the main credit bureaus. South African regulations allow you to request one free credit report per year from each of the major credit bureaus, ensuring you have access to your information and can address any issues promptly.

How To Achieve a Good Credit Score

A good credit score is key to accessing a wide range of financial products and securing favourable interest rates. It can also signal financial reliability to potential lenders, making you an attractive candidate for loans, credit cards, and even rental agreements.

Here are some essential tips to help you build and maintain a good credit score:

Pay Your Bills On Time

Timely payment is crucial to maintaining a healthy credit score. Payment history is the most influential factor in your credit score, making up about 35% of the calculation. Late or missed payments can significantly impact your score, so staying on top of payment deadlines is essential. Set reminders or automate payments to avoid late fees and potential damage to your credit score.

Keep Your Credit Utilisation Low

Credit utilisation accounts for 30% of your credit score, so keeping your credit card balances well below your credit limit is important. Financial experts recommend keeping your utilisation under 30%. For example, if your credit limit is R10 000, aim to keep your balance below R3 000. A lower credit utilisation rate shows lenders that you are managing your credit responsibly.

Maintain A Long Credit History

The longer your credit history, the more insight lenders have into your financial behaviour. The length of your credit history makes up about 15% of your credit score. If you’ve had credit accounts for several years, your score is likely to reflect this stable financial background. Keep older accounts open, even if you’re not actively using them, to maintain a longer credit history.

Diversify Your Credit Types

A healthy mix of different credit types, such as credit cards, retail accounts, and loans, can contribute positively to your credit score, accounting for around 10%. Having a diverse credit profile signals to lenders that you can manage various types of credit responsibly. However, don’t open unnecessary accounts just for the sake of variety; only apply for credit you truly need.

Limit Hard Credit Inquiries

Each time you apply for credit, a hard inquiry is made, which can slightly lower your score. Multiple hard inquiries in a short period can make you appear financially unstable, potentially lowering your score. Limit credit applications to avoid unnecessary hits on your score. Soft inquiries, such as when you check your own credit score, do not affect your score.

Building and maintaining a good credit score is an essential step in achieving financial well-being. It opens doors to favourable loan terms, lower interest rates, and better financial opportunities. Understanding the factors that influence your credit score and regularly checking both your score and your credit report will put you in a better position to manage your finances effectively.

Source: Old Mutual | Standard Bank | Investec | National Credit Regulator