Credit scores continue to play a major part in people's lives, being an indicator of their financial wellbeing by representing their ability to access credit and other financial services.
There are four major credit bureaus in South Africa, all using a common credit score model, ranging from 300 to 740. Scores (using the Experian methodology) are typically categorised as follows:
• 660 to 740. Excellent.
• 635 to 659. Good.
• 629 to 635. Fair.
• 600 to 628. Poor.
• 300 to 599. Very poor.
Good scores can get you lower interest rates, higher borrowing limits, and increased trust with lenders, says Paul Shortridge, Head of Credit Risk and Data at Weaver Fintech, owner of FinChoice and PayJustNow.
Shortridge shares five simple strategies to improve your credit score this year:
1. Consistently pay your bills on time because your payment history is the most important factor in
determining your credit score. Set up automatic payments or reminders to stay on track.
2. Keep your credit use to below 50% of your available limit. This tells lenders you are a responsible borrower.
3. Regularly monitor and keep track of your credit status by using the many free tools available. Correct any errors, outdated information and changes in your credit score.
4. Have a mix of credit types, such as credit cards, instalment loans (like car loans or bonds) and retail accounts. However, do not open any accounts you don’t need. Opening too many new accounts at once can negatively affect your credit score.
5. For those starting with a low score or no credit history, you can improve your credit rating by taking out mobile phone contracts, using Buy Now, Pay Later facilities and opening retail accounts. You can use these to establish a history of timely payments and responsible credit use.
Shortridge says financial literacy is key to financial inclusion, and consumers should use the many free tools available across the internet to build their credit scores and achieve their financial goals.
The Independent on Saturday