If, at some point in time, you applied for financing from a bank or some other institution, you will know that they draw your credit report from the credit bureaus to help them evaluate your application. The positive and negative factors on your report are translated into numbers (very much like a report card), the sum of which tallies up to a final credit score. This score is used by lenders to quantify the risk of offering credit to you. A reasonable risk is normally between 600 and 800 points. The higher your score, the better - because if your application is approved, your score will influence the terms and the interest rate that will apply to your loan.

Having said this, many lenders apply their own scoring models in addition to those of the credit bureaus. It is not uncommon for lenders to first run their own scoring model to determine whether an applicant is suited for their type of credit or not, before requesting the applicant’s credit reports from the bureaus.

There are two credit bureaus in South Africa: Transunion and Experian. The lenders purchase reports from both of these bureaus because they use different scoring methods: Transunion uses Empirica® and Experian uses Delphi ®.

Considering that your credit score plays a central role in your ability to secure financing and in your ability to be privy to competitive terms and interest rates, it would be wise to understand how the scoring works and what you can do to influence it for the better.

This accounts for 35% of your score and will include your account payment history, judgements, collection notices and debt counselling, amongst others. The score will also take the number of previously due items, the time elapsed since these were in arrears and the number of accounts that were paid, into consideration. Making at least the minimum payments on your accounts as and when these fall due, goes a long way towards improving your scoring in this category.

The ‘Amounts Owed’ category accounts for 30% of your score and comprises of all the outstanding (not arrears) amounts on your accounts, the balances on your accounts and the available balances on your lines of credit. Getting into too much debt, not getting into debt at all, and maxing out your lines of credit, will have an adverse affect on your scoring.

This makes up 15% of the score. This category covers the time since accounts were opened and the time since there was activity on the accounts.

10% of the overall score is derived from new accounts opened. This would include the number of recent enquiries and repairs to credit history, amongst others.

10% of the overall score is based on the number and types of accounts you hold.

By law you are entitled to one credit report from each one of the two credit bureaus every year, at no charge. It is a good idea to check your credit report to verify that the amnesty afforded for “unpaid debts under R500, inactive accounts and certain judgments”, by Section 73 of the National Credit Act, resulted in the removal of these items from your credit report. You may also want to be on the lookout for other negative information, which does not accurately reflect your current creditworthiness. If items such as these appear you can submit a written request that these be removed. If the matter does not get resolved, you can declare a dispute and have the matter referred to the credit ombudsman for resolution.