PERSONAL LOANS

There are some questions that science may never have the answer to, like ‘How much pizza is too much pizza?’ or ‘How many shows can I add to my Netflix list without ever actually watching any of them?’. Luckily, there’s a pretty clear-cut answer to ‘What is a good credit score?’. Read on to find out what your credit score needs to be if you want to borrow money via a loan or a credit card. We’ve also got some handy tips for improving your numbers game.

What is a credit score?

Your credit score is a rating assigned to you by independent companies that collect information about everyone who has ever borrowed money. Think of it as a financial ‘hot or not’, or a sliding scale of adulting from ‘still figuring out my shiz’ to ‘marriage material’. If you’ve ever had a cellphone contract, bought clothing on an account, taken out a loan, applied for a credit card, or registered a bond, you’ll have a credit score.

Those independent, info-collecting companies are called credit bureaus. Credit bureaus get their intel from lenders (like the bank that issued you a credit card, or even that clothing store where you charged your NYE outfit to your account). They then give that information to other lenders who are considering offering you credit.

The credit bureaus don’t just know how much you’ve borrowed – they also know how well you did with sticking to the repayment terms. If you have a court judgement against you or are undergoing debt review, the bureaus will also be clued in. (Don’t worry, while they can see that you used your credit card to get Mr D nine times this month, they don’t actually know or care that you ordered a Hawaiian pizza. Some of your embarrassing secrets are still safe.)

So is this like a ‘five stars, would recommend’ situation?

Almost. Your credit score is expressed in a three-digit number, for example, 600. Whenever you want to get a new line of credit, the lender will look at that number and decide what the chances are that you will pay back the moolah you borrow in the agreed-upon time – without them having to chase you down or make you an offer you can’t refuse, Godfather-style.

Something to remember: your credit score is not the only thing lenders will look at. They’ll also take into account things like how much debt you already have compared to your income, for example. So a good score is no guarantee of qualifying for the line of credit you’re after. You might also be able to get credit despite having a lower score, but your interest is likely to be much higher. Basically, it’s a look-at-the-whole-picture situation.

What is a good credit score?

Okay, here’s a slightly confusing bit. Credit bureaus have different scoring systems, so you should always check your score against the scale used by the bureau that gave it to you. A good credit score from one bureau usually means you’ll have a good score across the board. If you want to talk actual numbers, anything above 650 is usually considered finger-licking good.

Below are credit-score ranges from some of the biggest and most reputable credit bureaus used by South African lenders:

ClearScore

0–527: very poor

528–602: poor

603–649: fair

650–669: good

670–705: excellent

TransUnion

0–486: poor

487–526: unfavourable

527–582: below average

583–613: average

614–680: favourable

681–766: good

767–999: excellent

Experian

<599: poor

599–615: below average

616–633: average

634–657: good

>657: great

Why is a good credit score important?

If you have a good credit score, lenders are more likely to lend you randelas at the prime rate, which is the fixed interest rate used by banks. Customers with very good and excellent credit scores may get an interest rate that’s 1% or 2% lower than prime, whereas customers with poor credit scores may have to pay up to prime + 3%. A few percentage points might not sound like much, but it all adds up to quite a lot of cheese-stuffed crusts over a few months or years.

How do I find out my credit score?

Mzansi citizens can get one free credit report per year from ClearScore or one of the other credit bureaus. This is the law, and you won’t get any black marks next to your name just for asking – promise. Old Mutual also has a CreditView tool, powered by TransUnion, which lets you check your credit score any time for free.

Credit report vs credit score. What’s the difference?

Your credit score is that three-digit number we’ve been banging on about. A credit report is a more detailed rundown of your credit status, and it’s what credit bureaus base your score on. It’s got all the receipts, like:

• What accounts you have (a good way to check that nobody’s opened anything in your name without you knowing)
• How long you’ve had them and how well you’re managing them
• What you still owe on each one
• Public records, like bankruptcies or court proceedings
• A list of recent enquiries into your debt status – that is, who’s checking you out as a candidate for a loan (don’t worry, your Tinder date can’t make this kind of enquiry).

What will give me a bad credit score?

Basically, any behaviour that could be described as ghosting your responsibilities, like:

• Making late payments, or missing payments entirely
• Any legal proceedings such as defaults, court judgments and, uh, bankruptcy
• Applying for a lot of credit in a short space of time (this sounds the alarm that you might have some money worries going on)
• Moving house pretty often (lenders might get the impression that you’re a bit flighty)
• Mistakes. What? Yup. It’s a good idea to check your credit score regularly to make sure there aren’t any fraudulent accounts open in your name, or outright mistakes. Unless these are rectified, all your good financial behaviour will be for nothing.

What are the different ways of getting credit, and how do I qualify?

We’ve written about personal loans here and home loans here. These articles will spill all the tea about the different credit options out there and how to qualify for them.

How do I improve my credit score?

It’s simple, even if it isn’t always easy. Start small, be good and build up a track record to lay the foundations for your future self. It might take months to build up a better score, but unless you’re planning to move off the grid and survive by bartering your kombucha scoby for stoneground flour and goat milk, you’ve got to start somewhere.

Pay your instalments on time, smash your debt as soon as possible by paying more than the minimum instalment if you can, and spend responsibly starting today. Soon that smokin’ pizza oven in your braai area will be yours.

So you’ve got a good credit score and you’re ready to take out a personal loan? We’ll get you free quotes from our awesome partners in under three minutes, so you can compare your options.