Credit bureaus - what are they, and how do they set your credit score?

If you’ve ever applied for a loan, tried to enter a lease agreement, or approached your bank with regards to a new credit card, you may have been told that the credit bureaus would be involved.

But what is a credit bureau, and what exactly do they do? We have a look at how these institutions work, and how you can have a different score at different bureaus.   

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What is a credit bureau?

According to Bryan Smith, content manager of Wonga, a credit bureau is an agency that gathers an individual’s credit information in order to supply it to lenders and financial institutions.

The institutions can then use this information when deciding whether to grant a loan or credit to an applicant; or accept their rental application.

Zwelibanzi Phiri, founder and managing director of Capnovation, notes that credit bureaus are regulated by the National Credit Regulator, in accordance with the national credit act.

“Credit bureaus collect and record information about your credit activities. This information includes any short-term or long-term loans and accounts you may have,” says Phiri.

He points out that they collect information about your liabilities, your balances, how often you make payments, and any actions taken against you for non-payment.

According to Annelene Dippenaar, chief legal and compliance officer at Experian South Africa, most major credit bureaus serve the industry as a whole.

“However, in South Africa, there are some niche credit bureaus that serve specific markets. For example, there are bureaus that focus on the risk associated with tenants for rental properties,” she says.

For a full list of active credit bureaus in South Africa, she recommends visiting this link. Here, you will see exactly which credit bureaus are registered in the country.

Different bureau, different score

Dippenaar says that credit bureaus and credit grantors develop their own scoring models based on the type of factors and variables that are predictive of risk for the specific industry or segment of the population that they are dealing with.

“This means that there are different scores for a single consumer, depending on the institution from which the score is requested. There is no single score for a consumer in South Africa,” says Dippenaar.

While there are different scores, she notes that consumers who have built up good credit behaviour should consistently receive good scores across all credit bureaus and credit grantors.

“A consumer's score could be different, but they could still fall within the same category, such as a low or medium score, because the score is in a specific range.

"Similarly, consumers could have the same score but fall into two different categories,” Dippenaar explains.

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