Calculating your credit score

A credit report is a vital document that records all your debt and your repayment history on that debt. If your credit report is poor, i.e. you have large amounts of debt and you miss payments etc., a loans or credit provider may be unwilling to offer you additional credit.

Credit Bureaus, such as Compuscan, gather the data pertaining to your various lines of credit and any outstanding debt you may have. Your behaviour with regards to repaying your debt is reflected in the report, giving you a score. Based on this score credit providers will decide whether or not to grant you additional credit.

How accounts influence your credit score

Jacobus Eksteen, senior data analyst and credit expert at Compuscan highlighted: “Different types of accounts hold different scoring weights and can influence your score in many ways. However, by showing good repayment behaviour on a secured account (a mortgage or vehicle asset), you will be able to make a bigger impact on your score. Having revolving credit, (a credit card or store card, for example), will also count in your favour. But remember, your repayment behaviour is much more important than the type of accounts you have and you should not open accounts just to try and improve your credit score if you don’t need them. In addition, having too many open accounts can also count against you.”

Calculating your credit score

Compuscan explained: “Your credit score is a three-digit number, calculated using both positive and negative data that predicts how likely you are to honour your future credit agreements.”

The various variables looked at when calculating your credit score include:

• Adverses
• Judgments
• Collections
• Defaults (3+ months in arrears)
• Time since oldest trade (first account/credit granted)
• Maximum delinquency
• Recent Behaviour (recent arrears levels across different sectors of the industry)
• Change in balance variables
• Utilisation variables
• Number of trades (accounts or loans) ever
• Number of open trades
• Recent enquiries
• Time on bureau

While the above is based on what Compuscan look at, it is important to remember that each credit bureau will calculate credit scores differently.

If you have been a bad payer, this will reflect in your credit score. Compuscan pointed out that the total amount of credit you have does not have a major influence on your score, rather your score is calculated largely based on your repayment actions and not by how much you owe.

Eksteen said: “If you have a bad score due to accounts that are in arrears, you need to focus on negotiating new repayment terms with your credit providers to prevent them from handing you over for legal action. Try to avoid missing more payments and pay off accounts with the highest interest rates first. If your score is not looking good despite you being up to date with payments, focus on decreasing the utilisation of your accounts (i.e. the ratio of that which you currently owe to your limit or to the amount you borrowed). Always try to avoid reaching the maximum credit limit available to you.”

Maintaining a good credit score

According to Compuscan, the first step to maintaining a good credit score is to monitor your credit report. There are a number of reasons why you should access your credit report, even if you do not have any credit.

“Your identity could still be at risk, since the information on your report does not only show credit data, but other information such as your personal details. Your personal information may have changed (potential employers also do checks on interviewees). So, it’s best to keep your data up to date, regardless of the information displayed or not displayed. At some point in your life you will eventually take out a loan, cell phone contract or get insurance. It is advantageous to know and understand your credit report before you acquire credit for the first time,” pointed out Compuscan.

If you have a bad credit score, unfortunately, there is no quick fix. To rehabilitate your score will take time and positive behaviour on your account.

Tips for improving your credit score:

• Try to maintain a variety of credit accounts, so that you can demonstrate responsible repayment behaviour across a range of financial products. Remember, it’s not about making more debt – it’s about showing that you can manage your current debt.
• Pay the full instalment amount that is owed on your account(s) every month and pay on time each month (skipping payments means a negative entry on your credit report, which can become a score killer).
• Avoid opening multiple accounts, especially if you can’t afford to, don’t need them or don’t intend to use them. 
• Be patient. Understand that a minimum risk score is something that you work towards over time by being credit savvy.

Accessing your credit report

By law credit bureaus are required to offer one free credit report every 12 months. To access this you can visit the website of the credit bureau you prefer, there is Compuscan, TransUnion and Experian, among many others. 

While you can access one credit report per bureau each year, your report changes on a regular basis, and as such Compuscan recommends checking your report on a monthly basis. Credit bureaus offer a paid service which grants you access to a detailed credit report each month.

Compuscan offers this service through its My Credit Check platform. “My Credit Check enables you to monitor the complete record of your credit history, your borrowing habits, re-payment trends and contact details. Information is clearly grouped and thus you are able to easily deduce what data is having the biggest impact on your credit score and finances,” explained Compuscan.

It added: “As part of My Credit Check, a new offering: “What’s My Score” was launched in 2015. This package enables you to stay on top of your financial standing by receiving your credit score via SMS on a monthly basis for a small fee.”

There are also companies such as Kudough, which collate the information on multiple credit bureaus and presents this information on a report for the consumer.

Handy tip: You can apply for a comprehensive credit report through Kudough on Justmoney.