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What Affects Your Credit Score?

Credit scores can be difficult to understand. Not all companies use the same scoring system and not all lenders use the same credit scoring company, so it can become quite frustrating at times. Therefore, the best way to keep your credit score healthy is to monitor the things that can affect your score and keep them in check!

A credit score is a number produced by a scoring system based upon your credit history. Your credit history includes all of your past borrowing, any missed payments or defaults, the amount of credit you’re using and much more. The company you are borrowing from doesn’t often have access to the detailed report; they just use a baseline score that they will offer credit to. It is important then to address the individual factors in your report to ensure that your score meets their requirements.

Although many credit scoring companies use a different scoring system, they are all based upon the same factors. This means that if you ensure that you take care of the factors below, you shouldn’t need to worry about the actual number assigned to you.   

Factors That Can Affect Your Credit Score

  • Missing or late payments — missing a payment on one of your debts will be noted on your credit report. Missing several payments will have a more negative impact. At this point, most lenders will ‘default’ your account and begin the process of chasing the money owed to them. A default on your credit report has a pretty serious effect on your credit score, so the golden rule of keeping your credit score in check is to keep up with payments!
  • How much of your credit limit you are using — Your ability and willingness to pay back credit is partially assessed by looking at the credit you already have. If you are at your limit with other lenders, you may be viewed as a little more of a risk than if you have lower balances.
  • The age of your credit accounts — Your credit score can go up (or down) depending on how long you have been using credit as well as how old each credit account is. For example, if you have been using credit sensibly for ten years, your credit score will be higher than someone who has never used credit. However, whenever you open new accounts, your average age of accounts will decrease, thus decreasing your credit score.
  • Errors on your credit report — It is good practice to regularly check your credit report across all three major credit scoring companies to check that your personal information is correct. There are two major credit scoring agencies in South Africa TransUnion and Experian. You should regularly check that your address is up to date and check for things that you don’t recognise showing on your report. If you spot an error, raise a dispute immediately.
  • Having no credit history — It goes without saying that you can only have a credit score if you have used credit. If you’re just starting out, you can try just taking out small amounts of credit. You can also use the tips below to help build a good credit score.

Rebuilding Your Credit Score

Whether you’re rebuilding a bad credit score or starting from scratch, it is possible to get a good credit score and enjoy the benefits that come with it. Use the points above as a guide to help you get on track and remember, a good credit score won’t happen overnight. 

If you are rebuilding your credit after completing a Debt Review or paying off debt, it may be difficult to obtain credit at first but don’t give up hope! After Debt Review you will receive a clearance certificate and your name will be cleared from all credit bureaus.

Because you will be rebuilding your credit score from scratch, you will have to start off by borrowing small amounts. You will not be able to apply for large credit amounts like a car loan.

If you are struggling to recover from debt problems or are having difficulty repaying debt, contact Debt Movement today for help and guidance from our friendly and professional team.