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How To Build A Strong Credit Record In South Africa

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A pivotal step towards getting the best credit opportunities is by maintaining a good credit score. However, there are various things that can play a role in dropping your credit score if you are not careful. 

But do not fear, in this blog we are going to explore exactly what determines a healthy credit score, specific things that can influence it, as well as the practical steps you can take to build a really strong credit score in South Africa.


What is a good credit score in South Africa? 

A credit score is rated as a number between 000 and 999. In South Africa, most credit bureaus rate credit scores between 300 and 850. A low score is considered to be between 580 and 579, while a good credit score is usually over 700.

Remember this: The higher your credit score, the healthier your credit is and the lower your credit risk profile.

To better understand the concept of building a healthy credit score, consider the term ‘credit’ – which refers to the act of lending money from a financial institution that you will repay, with accumulated interest, over a predetermined period of time. 

To access credit from a financial institution, you need a good credit score. Why? Because your credit score is the benchmark that lenders use to determine if you’ll be able to repay them, and decide whether they want to lend you money or not. 

Consisting of your current employment status, age, credit history and spending habits, your credit report (which includes your credit score) provides lenders with a detailed summary of your overall credit risk profile.


Building a healthy credit score

If you believe your credit score may be on the low side, don’t panic because there are numerous ways you can grow your credit score, whether it is from scratch or in need of a boost. Here are some options: 

  1. Pay outstanding debt: this may seem like an obvious approach but, if possible, pay even the smallest amount of debt held to your name as missed repayments reflect negatively on your credit report.


  2. Pay bills on time: every month, timeously pay all your bills. Consistency is key so by showing lenders your uniform paying behaviour, it will simply benefit your credit score in the long run.


  3. Apply for a credit card: if you are a newbie to credit, start slowly by applying for a credit card and making payments towards it. Only open a credit account if within your means. You can also apply for a retail credit card (with a shop that you like or frequently visit) and make consistent payments towards that account if you are hesitant to open a credit account with a bank.
  4. Reduce your credit ratio: your credit ratio is the gap between the amount you owe and your credit limit. Reducing your credit ratio demonstrates to lenders that you can manage your credit card payments and strengthens your credit score. Note that it is recommended you keep your credit ratio below 30%.


  5. Increase your credit card limit: if you are able to confidently make steady payments towards your credit card, consider increasing the spending limit to boost your credit score and minimise the credit ratio.


  6. Become a co-signer on a joint account (exercise caution): another way to grow your credit score is by becoming a co-signer to a credit account. Alongside a trusted individual, you can both make payments towards the account and grow a good credit score.
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Things that can impact your credit score 

Payment history

As previously mentioned, your credit report and score are primarily determined by your spending habits and credit history. Missing payments can have negative consequences on your risk status and credit score. 


Accumulating too much debt

Accumulating too much debt too quickly not only increases your chances of falling into debt but also reflects badly on your credit history. By maintaining a balanced combination of unsecured credit (credit cards or personal loans) and secured credit (car payments or a mortgage), you can build a robust credit history as long as you do not overdo it. 


Negative or inaccurate information reflecting on your credit report

It is important that you continuously monitor the status of your credit score. This being said, also keep an eye on your credit accounts in case of inaccuracies or fraudulent activity. If you flag any suspicious activity or incorrect information on your account, report it to your creditor as soon as possible. 

The timeline of your credit history 

In your journey to develop a healthier credit score, make sure to take the timeline of your credit accounts into consideration. This means the age of your latest credit account and oldest credit account – from the time you applied for them to the time you closed them. To put it succinctly, the longer your credit history is, the higher your credit score will most likely be. Keep this in mind when considering whether you should close an account or not.   


Credit applications and activity 

Just like knowing how long your credit account history spans, it is also necessary to know how many times you have applied for new credit and closed credit accounts. Too many simultaneous applications for credit may indicate to lenders that your financial circumstances have drastically changed or there may be an unsavoury reason your applications are being denied. 


Become the very best candidate for good credit in South Africa 

With an informed and disciplined approach to credit, the benefits of having a healthy credit score are endless. We hope this blog has highlighted the potential pitfalls you may encounter when trying to achieve a good credit score, as well as the practical steps you can take to stay creditworthy and debt-free.

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Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

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