Thread by @stealthy_wealth

Your Credit Score

What is it?
How can you view it (for free)?
What affects it?
Why is it important?
How can you improve it?

[THREAD]

[1] WHAT IS A CREDIT SCORE?

Your credit score is a 3 digit number representing how you have handled debt and payment obligations in the past.

If you have been a payment pro, then you'll have a high score.

If you've been a little naughty with debt, you'll have a lower score.

Your credit score is calculated by a credit bureau (an independent company which is licensed to collect credit information of individuals)

There are 4 different credit bureaus in South Africa
• TransUnion
• Experian
• Compuscan
• XDS

Credit bureaus collect information about your credit and payment behavior (from lenders, utility companies and even mobile phone companies and insurers.)

They use the info in a top secret (for reals) formula to calculate your three digit credit score.

Each credit bureau uses a slightly different calculation to get to your credit score.

So each person actually has 4 different credit scores

[2] WHERE CAN YOU SEE YOUR CREDIT SCORE?

By law, you are entitled to one free credit report (which will contain your credit score) from each of the credit bureaus.

So, you could go direct to each of them and ask for your free report.

But here's what I do...

ClearScore* is a website that will give you your full credit report from Experian for free, and you can check it as often as you like (at no cost).

clearscore.co.za

* I have no affiliation

Getting set up is super easy:

1. Click Log In
2. Click Create new account
3. Go through the steps to register
4. Ignore any follow up emails with offers/promos for more credit etc. (I just unsubscribed from the mails)

Once you are registered, you can log in and see your credit score.

Here is what it looks like (using yours truly as an example😀)

(The score is out of 705 because it is from Experian. The maximum score at the other bureaus will be different)

You can then also click on "Report" to see your full credit report.

Your credit report contains:
• How much credit you have used
• Payment history (and if you’ve missed payments)
• Recent credit applications
• Any defaults and court orders
• Details of your accounts

As an example, here is my credit report

I have (mostly) been a good boy – although I lost some points on the multiple credit enquiries I logged last year while doing some research. That pulls my score down a little

And that brings me to the next important section...

[3] WHAT AFFECTS YOUR CREDIT SCORE?

These factors have the biggest negative impact on your credit score
• Late/missed payments
• Defaults on debt
• Court Judgments
• Bankruptcy

Any oopsies on these stay on your report for 5 years, and have been known to scare lenders away.

Other factors affecting your score (1/2)

• Applying for credit (Every time you apply for credit, a mark is made on your file. Don't apply for too much credit too quickly)
• How much of your credit limit you're using (keep debt repayments to less than 30% of your income)

Other factors affecting your score (2/2)

• Age of accounts (Older credit accounts help your score and look better in the eyes of a lender - age is beauty)
• Frequent change of address (if you move around you are perceived to be slippery and difficult to find)

[4] WHY IS YOUR CREDIT SCORE IMPORTANT?

Before the lenders/banks extend a loan, they want to know how risky it's going to be. Someone saying "I promise I will pay you back" is not going to cut it.

So they use your credit score (one of the big factors in their risk assessment

To the lenders it's simple:

• High credit score = low risk
• Low credit score = high risk

The way they see it, a high credit score means you have a history of handling credit well.

This means you're a "good payer" and so you'll be more likely to get accepted for credit, and also more likely to get a better interest rate on your loan than someone with a low score.

[5] HOW DO YOU IMPROVE YOUR SCORE?

In short it is about being responsible with credit.

• Don't overextend yourself
• Pay all your installments on time, every time
• Don't apply for credit multiple times in a short space of time

And if you are struggling to meet your current debt obligations:
• Remember that a late payment is better than being in default
• Be proactive and get in touch with your lenders to try make a plan before your credit record gets trashed
• Get professional help if you need to

There's a common perception that you need debt to get a good credit score. And yes, having a debt repayment record is helpful.

But interestingly, both my cellphone and insurance accounts are listed on my report. So having those types of debit orders can get you on the radar too